ICL Group Ltd

TASE:ICL

Earnings Call Analysis

ICL Reports Lower Q2 Sales; Adjusts EBITDA Guidance

ICL faced a year-over-year decline in Q2 sales with $1.83 billion, attributed to a drop in commodity prices compared to the previous extraordinary Q2 in 2022. Despite a cyclical downturn and macroeconomic challenges, including in China, the company successfully adjusted operations, improving cash flow to maintain strong shareholder returns with a dividend of $0.06 per share. The company posted an adjusted EBITDA of $441 million, and while potash volumes grew, the lower prices significantly impacted profits. They proactively controlled costs to counter lower volumes and prices in multiple segments, while strategizing for specialties product growth. ICL anticipates an adjusted EBITDA for 2023 to be between $1.6 to $1.8 billion with the specialties segment contributing $0.8 to $0.9 billion.

Navigating Through a Transitional Quarter

In the latest earnings call, the story of a company navigating the headwinds of a changing market environment unfolds. Sales dipped to $1.83 billion for the quarter, reflecting a predicted year-over-year decrease, in part due to a decline in commodity prices from their peak last year. Despite broad market challenges, the firm's Potash segment experienced a volume boost, benefitting from increased sales to China, India, and the United States. The company faced downward pressure on its adjusted EBITDA at $441 million, influenced by weaker prices and volumes, yet they managed to mitigate some financial strain through reductions in raw material and transportation costs, proactive destocking efforts, and adjustments to production.

Strategic Expansion Amid Market Adjustments

Amidst the financial turbulence, the company signaled growth and long-term optimism with the announcement of breaking ground for a large-scale battery materials manufacturing plant in the United States. This strategic move positions the company to capitalize on the growing demand for electric vehicles and energy storage solutions, underlying the company's pursuit of expanding its specialty products portfolio.

Adjusting Forecast in Uncertain Times

Looking at performance over the past three years, sales, although down year-over-year, showed an increase compared to 2021. However, recent negative developments prompted the company to revise its guidance in June, including a new framework agreement with Chinese potash customers and delayed recovery in flame retardants market demand. These adjustments suggest a cautious outlook, with the new guidance estimating a 2023 adjusted EBITDA between $1.6 billion and $1.8 billion, with specialties contributing $0.8 billion to $0.9 billion.

Financial Resilience Amidst Adversity

Despite facing cost pressures and market volatility, the company exhibited strong fiscal discipline with significant cash generation, achieving $391 million in operating cash flow and free cash flow of $221 million. They persisted in delivering value to shareholders with a quarterly dividend of $0.06 per share. Moreover, the company's emphasis on expense reduction and improved production processes across its segments has positioned it to navigate the current economic landscape effectively while laying the groundwork for long-term success.

Setting Sights on Long-Term Growth

The company's holistic approach focused on reducing costs and working capital while advancing a savings and efficiency plan, which is expected to bear more fruit in the second half of the year. The diversified global footprint and adaptive nature of the business have allowed it to cope with unyielding geopolitical tensions and adapt to macroeconomic pressures. Although external challenges have caused short-term disruptions, the company does not foresee them materially affecting its five-year strategic plan, aiming to ride the wave of trends such as the global shift towards electric vehicles and the development of innovative solutions.

Maintaining Financial Stability

At the quarter's end, the company showcased healthy financial metrics, maintaining a net debt to EBITDA ratio of 0.72 times. Focusing on efficiency and cost reduction, the company also reported substantial improvements in cash conversion and ended the quarter with ample available cash resources totaling $1.7 billion. This financial prudence has been recognized by credit rating agencies, with Fitch and S&P reaffirming their BBB minus ratings for the company.

Earnings Call Transcript 2023-Q2

[Peggy Reilly Tharp, Vice President of Global Investor Relations]

Hello, everyone. I'm Peggy Reilly Tharp, Vice President of Global Investor Relations. I'd like to welcome you and thank you for joining us today for our quarterly earnings call. The event is being webcast live on our website at icl-group.com.

Earlier today, we filed our reports with the securities authorities and the stock exchanges in the U.S. and in Israel. Those reports as well as the press release are available on our website. There will be a replay of the webcast available after the meeting, and a transcript will be available shortly thereafter. The presentation, which will be reviewed today, was also filed with the securities authorities and is available on our website. Please be sure to review the disclaimer on slide two.

Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. The company undertakes no obligation to update any financial information discussed on this call at any time.

We will begin with a presentation by our CEO, Mr. Raviv Zoller; followed by Mr. Aviram Lahav, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

[Raviv Zoller, President and CEO]

Thanks, Peggy, and welcome, everyone. Earlier today, we announced our second quarter results, which are compared to an all-time record quarter last year.

As you can see on slide three, second quarter sales of $1.83 billion were in-line with revised expectations, but down as expected, versus an extraordinary second quarter in 2022 when commodity prices peaked. While the year-over-year decline in price has impacted all of our businesses, and we generally saw lower volumes.

Our Potash segment volumes increased in the second quarter, as we sold more products to China, India, and the United States. Lower prices in the second quarter also significantly affected our adjusted EBITDA, which was $441 million. However, we did see some benefit from lower raw material and transportation costs. We continued destocking throughout the second quarter, and proactively adjusted production as needed. Also, we adapted our savings and efficiency plans to react to the challenging near-term macro conditions.

As a result, we were able to reduce costs, including through production improvements at our industrial products and at growing solutions in Brazil, and through additional G&A cost reduction efforts. While the cyclical decline was more rapid than expected, ICL delivered a well-executed quarter as we quickly adjusted to current market conditions, ensuring continued strong cash generation, while adhering to our long-term strategy.

We delivered operating cash flow of $391 million in the second quarter and free cash flow of $221 million which was identical to the first quarter of this year. We continue to return value to our shareholders in the second quarter, as we reported diluted earnings per share of $0.13 and declared a quarterly dividend of $0.06 per share.

We also remain committed to our long-term specialty strategy through our investment in lithium iron phosphate battery materials production. Just yesterday, our Board of Directors and Executive Leadership were joined by Jennifer Granholm, Secretary of the Department of Energy, and Mike Parson, Governor of the state of Missouri to break ground for this exciting project at our manufacturing campus in St. Louis.

Our St. Louis facility will be the first large scale battery materials manufacturing plant in the United States, and is expected to help meet growing demand from the energy storage, electric vehicle and clean energy industries for U.S. produced and sourced essential battery materials. In addition, we remain committed to introducing new technology and additional capacity to enhance this unique and timely opportunity.

Let's turn to a three-year look at some of our key metrics on slide four. Again, while sales were down year-over-year as expected, they were up versus the second quarter of 2021. While we had anticipated the second half of this year to progress at a more normalized rate, we recognized some negative near-term developments and announced the change to our expected guidance in late June. At that time, we provided an update to the framework agreement with our potash customers in China. We also cited the delayed recovery in flame retardants, and I will speak more about these in our segment reviews.

On slide five, you can see second quarter year-to-date specialty sales, which followed a trend similar to our consolidated results. As expected, earnings per share were down versus an extraordinary 2022 and up when compared to 2021. Also, as I just mentioned, we saw significant year-over-year growth in both operating and free cash flow versus the second quarter of 2021.

I would now like to begin our segment review with industrial products on slide six. Second quarter sales were $300 million, while EBITDA was $74 million or 25%. The recovery and demand for flame retardants which was expected in the second half of the year has not materialized. For the second quarter, lower demand resulted in increased competition and lower prices.

In addition, elemental bromine prices hit lows not seen since 2008 and 2009 and low price flame retardant supply remained in the market. Once again, results vary significantly by end market. Weakness in electronics continued and was magnified by a slow return to growth in China than had been projected, while the building and construction end markets remained soft as well. Meanwhile, demand for clear brine fluids and for our specialty minerals was stable in the second quarter.

As the recovery in flame retardants looks to be delayed until the end of this year, we expect the $200 million EBITDA reduction we estimated in June, will negatively impact our 2023 results. During the first half of the year, we targeted cost savings and inventory reduction efforts, and we will continue to do so in the third and fourth quarters. Despite this temporary setback, our industrial products business remains on-track for the long-term. We continue to work with our partners to improve our competitive position, and to develop innovative flame retardants and other solutions. Our steps to create additional savings are also bearing fruit with more to come.

We do not expect recent developments, which are predominantly external, to have a material impact on the execution of our five-year plan. We also expect demand for flame retardants to keep in pace with the traditional electronics replacement cycle over the long-term, and to accelerate as the global conversion to electric vehicles continues as the artificial intelligence trend materializes.

Turning to slide seven, and our Phosphate Solutions division, where we reported sales and EBITDA of $605 million $130 million, respectively. For the quarter, Phosphate Specialties represented 65% of sales and nearly 65% of EBITDA. Food demand remained resilient with higher prices in North and South America as well as in Europe. For industrial end markets, prices were slightly higher in North and South America, but offset by generally lower volumes in most regions.

Overall end market demand in the U.S. remained stable, but competitive price pressures continue to impact other regions. And while conditions are below those, we experienced in an exceptional 2022, the base Phosphate Specialties business remains very healthy. As I already discussed, we broke ground yesterday for our new battery materials manufacturing facility in St. Louis in partnership with the Department of Energy, which provided ICL with a $197 million grant.

On slide eight, you will see our Potash results, where sales were $556 million and EBITDA came in at $213 million. In late June, we agreed to supply our customers in China with an aggregate amount of 800,000 metric tons of potash during 2023, at an agreed upon price of $307 per ton, which was the prevailing rate.

For the second quarter of this year, our potash price per ton was $403, down from $801 in the second quarter of last year, but nearly $115 higher than in the same quarter of 2021. Potash prices have recently stabilized. As mentioned earlier, our volumes increased over the past quarter, led by supply to China and India, and we benefited from decreases in energy and transportation costs.

Turning to slide nine, in our Growing Solutions business, which delivered second quarter sales of $481 million and EBITDA of $22 million as prices in the specialty fertilizer market declined overall, due in part to destocking of high priced inventory. In addition to a later start to spring in some countries, weather related issues caused farmers to maintain a wait-and-see strategy even as the affordability remained above average.

Despite these challenges, Growing Solutions delivered record free cash flow of about a $100 million. The division remained focused on reducing working capital and destocking inventory while executing against its saving and efficiency plan with more to come in the second half of the year. Some products like FertilizerpluS were impacted by the decline in potash prices as well as the delayed start to the season, especially in Europe where demand was weaker than expected.

In other areas, like India and China, the division made headway against its strategic plans, and has been launching customized efforts to advance its digital outreach and increase its share of wallet. We expect gradual improvement in the third quarter, as we work through these short-term challenges, and we remain focused on M&A opportunities and investments in innovative new product offerings targeting long-term specialties growth.

I would now like to draw your attention to slide 10, and a review of the key areas where we're focused. We are, of course, maintaining our commitment to our long-term strategy, notwithstanding the short-term highs of 2022 and some unexpected challenges in 2023. All of our businesses are committed to enhancing efficiencies and competitiveness, which helped us deliver strong cash flow in the second quarter. We remain dedicated to growing our specialties product portfolio while targeting M&A and strategic partnership opportunities.

As I do every quarter, I want to thank the entire ICL family of employees all around the world for their hard work and significant contributions. I'm proud to lead this team of more than 12,500 global partners.

And with that, I would now like to turn the call over to Aviram.

[Aviram Lahav, Chief Financial Officer]

Thank you, Raviv, and to all of you for joining us today. Let us get started on slide 12, where you can see a review of the external macro pressures, we have been discussing for several quarters now, with many of these remaining unchanged.

Inflation rates started to decline year-over-year, but prices remains elevated for the end market consumers in the second quarter. As we've previously discussed, this forces families to make choices about their discretionary income. For example, home improvement and curb appeal projects are being delayed. While food demand remains resilient, as soon as our phosphate specialist results. In addition, these trends are further impacted by interest rates which remain elevated on a global basis.

In general, global growth continues to be subdued, which is why it is important for companies like ICL to have a varied geographic footprint. We also benefit by participating in a wide array of end markets, not only across our four segments, but within each line of business as well. Being a global company means reacting swiftly to conditions around the world, which we did in the second quarter. Still, many geopolitical obstacles persisted as the situation in Ukraine remains unbalanced. The food insecurity crisis in Africa threatens to expand and uncertainty regarding China's recoveries have increased.

Just three months ago, China's economy appeared to be rebounding faster than anticipated. However, recent indicators suggest otherwise, sluggish domestic demand in China, which represents the second largest economy in the world, is being compounded by ongoing concerns around the country's housing and construction markets. In terms of global agricultural demand, crop prices remain elevated above pre-COVID levels as farmer affordability continues to be resilient especially in the U.S., while fertilizer prices have declined from the peaks we saw in 2022, they're beginning to show signs of stabilizing.

On slide 13, you can see some of the trends I just discussed, while inflation rates generally trended down versus the second quarter of last year, they remain elevated on a historical basis. When this is combined with higher interest rates, it results in consumers being forced to prioritize their spending. In China, while the economy expanded by 6.3% in the second quarter, this was below expectations. Quarter-over-quarter GDP growth in China slowed from 2.2% in the first quarter of this year to just 0.8% in the second quarter.

Turning to slide 14, where we have a collection of key agricultural metrics, commodity crop prices have stabilized in the second quarter with the exception of rice, which is seeing prices moving even higher in recent days following India's recent export ban.

In the U.S., farmer sentiment continued to improve, and the Purdue Ag Economy Barometer for July indicated that farmers remain cautiously optimistic about the agriculture economy. This improvement came after one month soon in May, which was followed by an upswing in June, as farmers took a more optimistic view of the future.

On slide 15, you can see expected trends for electric vehicles over roughly the next decade. As Raviv, already discussed, yesterday we broke ground at our battery material plant in St. Louis. As a reminder, this new facility will be able to support not only electrical vehicles, but also the infrastructure behind them, including energy storage.

If you will now turn to slide 16, well on the left side, you can see the sales bridge from the second quarter of last year to this year. For industrial products, sales of flame retardants remained weak. In Potash, sales volume to China, India and the U.S. increased, however the prices were lower year-over-year.

For Phosphate Solutions, higher prices for specialty food phosphates and lower raw material costs were unable to offset lower phosphate fertilizer volumes and prices. At Growing Solutions, we saw lower volumes and prices for our FertilizerpluS and Specialty Agriculture products, while higher prices in our turf and ornamental business were unable to offset lower volumes. On the right side of the slide, you can see a year-over-year, a breakout of our second quarter sales by quantity and price.

Turning to slide 17, for our adjusted EBITDA which was $441 million, and down year-over-year as expected, but up more than 20% versus the more normalized second quarter of 2021. The significant reduction in potash prices year-over-year had the biggest impact, which you can see on both the left and right hand side of the slide. We have maintained our preferred cost position for our target potash market, and remain in an excellent location on the cost curve.

As you can see on the left side of slide 18, we are in the first quartile, in addition to leading from a cost curve perspective, we are also leading from a price perspective, as you can see, on the right side of this slide.

I would now like to review a few highlights on slide 19. At quarter end, our net debt to EBITDA ratio was at 0.72 times, each of our businesses strive to reduce working capital and inventory during the second quarter, while executing against their savings and efficiency plans. We remained tightly focused on cost reduction and recorded a significant improvement in this area in the second quarter.

Our prudent cash management resulted in strong cash conversion in the quarter, and we delivered operating and free cash flow of $391 million and $221 million, respectively. At quarter end, our available cash resources totaled $1.7 billion. For the second quarter, our dividend was approximately $81 million or $0.06 per share. This brings our dividend yield for the past four quarters to 7.4%, and industry leading rate. Also, during the quarter, Fitch and S&P reaffirmed their ICL credit ratings with both firms maintaining senior unsecured ratings of BBB minus.

Finally, on slide 20, you can see our 2023 guidance calling for adjusted EBITDA of between $1.6 billion to $1.8 billion in total and for our specialties businesses to contribute between $0.8 billion and $0.9 billion of that amount, which we indicated back on June 22. As a reminder, this guidance reflects the impact of the lower than anticipated potash price in China and the delay in the recovery of global demand for flame retardants.

And with that, Peggy, we can begin the Q&A.

[Peggy Reilly Tharp, Vice President of Global Investor Relations]

Thank you, Aviram. [Operator Instructions] Our first question will be from Alex Jones at BoA.

[Alex Jones, BoA]

Thanks. Good afternoon, everyone. Thanks for taking my questions. The first one on, like, good dynamics you talked about destocking and lower demand in Growing Solutions. Can you give us a little bit of color on how that's evolved into the third quarter? I guess some of the spot prices indicate that the pond is improving, it would be good to hear your thoughts on that and how it differs by region? And then the second question, if I may, on industrial products, I know that pricing in the division has turned negative for the first time since 2020, and I think, Raviv, you cited lower elemental prices. Can you talk a little bit about how you expect that to evolve in the second half, or that pricing will recover or turn more negative, and maybe even into 2024, if you have any early thoughts? Thank you.

[Raviv Zoller, President and CEO]

Sure. Thanks, Alex, for the questions. I'll start with Growing Solutions. We've been going through destocking now for almost three quarters. And the dynamics of the market are that the farmers were in wait-and-see position given a price is going down for such a long time. That has halted. So, now we're seeing prices stabilized and even go up. But at the same time, we're still selling product with raw materials from the past, at least two quarters. So still, there is some, high cost inventory that's flowing through.

So, we're not completely normalized in the third quarter, but at the same time, we're in much better shape, because prices are not going down anymore, they're going up. And the raw materials were in a downwards trend. So, we expect to see an improvement already in Q3, especially in Brazil.

Please note that in terms of overall sales, sales were actually pretty positive B2C sales were very positive, B2B sales we actually pulled a little bit because of profitability reasons. So, it was a conscious decision. So overall, going forward, we'll see better third and better fourth quarter also because of seasonality in Brazil as well.

As far as our IP division is concerned, yes, prices have trended downward, and we're seeing the lowest prices in the last 15 years or so. We don't see the prices trending further down for a simple reason that, they're below the cost levels of some of our Chinese competitors. We've actually seen a first bankruptcy of a small producer in China, and we expect that most of the Chinese producers are in bad shape at this point.

So, there could be some, and we expect some supply balancing and some supply capacity coming out of the market, which is, as far as we're concerned, it won't be too terrible if prices keep relatively low for a few more months, because we have some unstable supply that is good for us not to have in the future. Of course, we can't control the direction of the wind. We can only adjust our sales.

And, unfortunately, our discipline was not enough in the first half of the year, because there wasn't enough demand to exercise our value-over-volume strategy effectively enough. Now that, we think that the market has gone through the downward process, we're actually keeping our market share in terms of actually exercising the volumes in our long-term contracts. In the first half of the year, we sent some of our customers to buy cheaper product on the market rather than take a volume from us.

And in fact, if you look at the overall ICL results, most of the volumes that we lost or most of values of the volumes we lost and the value attributed to lower quantities comes from the IP division. Well, at the same time, had we insisted on selling those volumes, then the prices would have gone down faster or further. And so, well, we would have seen the same kind of results, but more price effect unless volume effect.

So, the short answer is, we don't foresee prices going down further. We don't see them correcting very fast, because the demand is still not back. The supply chain is not full of stock anymore. So, there has been plenty of destocking, but there's not enough front-end demand to take prices up quickly. At the same time, supply is strained. Some of the suppliers are strained. So we think that, we're reaching a new balance, and expect that once demand picks up a little bit, the prices will pick up as well, and we'll return to a normalized situation.

It is important to note that in this kind of business where in the worst times, we can still achieve 25% EBITDA, says a lot about what -- how great this kind of business is. And we're sure that over the long-term, over the cycle, we'll do a lot better, of course. Hope that answers.

[Alex Jones, BoA]

Thank you.

[Peggy Reilly Tharp, Vice President of Global Investor Relations]

Thanks, Alex. Our next call is from the line of Joel Jackson with BMO. Joel?

[Joel Jackson, BMO]

Good morning. Good afternoon. A few questions, in the Potash business. So, can you give a bit of your expectation for what pricing might be in the third quarter? And then it looks like potash production, is a little bit lower in Q1 and Q2 than it has been last year. Can you talk about what the production run rate would be like for the rest of the year in 2024?

[Raviv Zoller, President and CEO]

Yes. So for us, the production in the first quarter was lower than last year. Second quarter was back to normal and even a 100,000 more than originally planned, because it was a 100,000 tons deferred from the first quarter to second quarter.

Going into the year, we expected that we'd be able to produce about 4.8 million, that's down a little bit because some issues that we had in Spain, and I won't go back into them, but the bottom line is that we're going to produce about 4.7 million. We expect that the sales volumes in Q3 and Q4 will be relatively similar to Q2.

In terms of the average potash price, that becomes easier for us now, because we're completely sold out of granular product until the end of the year. We still have some standard product to sell, because the shipments to India were halted, and we haven't supplied all of our India contract. There's ample demand. So, if we need to sell outside of India, of course, we will. But given that we have clarity, then we expect the average potash price for the second half of the year to be around 340, and maybe a couple of bucks more. But that's pretty certain from our perspective.

In terms of the dynamics, dynamics turned at the end of June. Right now, we're seeing strong inland demand in China. And the result is that the prices are actually moving up inland and China. We see Brazil prices rebounding from 310, 320 to over 350. Europe is relatively stable after somewhat of a downward spiral, for a few months. And the U.S. looks relatively healthy even though it's fluctuating.

So, I can't say that the prices have been established in the U.S. A little bit longer term, we do see some, buying interest for January and February, in Brazil, which is very positive because that was not happening last year at all. There was no spot buying last year in, July and August. Like I said, we're not selling anymore this year, but we're starting to sell for next year. So, that's positive.

So, I'd say the overall dynamics in the potash market also given the new policy it seems of, our Canadian competitors, to curtail some of their production capacity that also gives more stability from the supply side. So that's in short, the potash dynamic at this point.

[Aviram Lahav, Chief Financial Officer]

Maybe to add, I'm sorry that, I think we're seeing the Russian bellow side stabilizing and not continuing to close the gap. So, there is some volume that is removed from the marketplace on that account as well. We put it all together, and we do not have a situation, I believe, anymore, where supply is significantly higher than demand, which will lead to a constructive surrounding for pricing. Put it all together. I think that's the picture that we see. That's the picture our peers see. And I think it makes a lot of sense. That's it.

[Joel Jackson, BMO]

Okay. And just finally, when you think about your current opportunities at Boulby or Cleveland potash for polysulphate and the different variants that you have with products, now potash prices go a bit back down to 300s, sort of, the higher end of the mid-cycle range. What is that business, like you're doing great production of polyhalite, polysulphate. Is that business now generating a significant return -- a reasonable return to keep the business going? What do you need to -- what kind of earnings are you making on it this year? What do you need to make it a viable long-term business?

[Raviv Zoller, President and CEO]

Okay. So, that's a great question. First of all, it's a profitable business, but it's not a very profitable business like it was last year. The potash price going down and the relatively weak demand all around fertilizers in Europe has hurt that business. So, yes, we're producing great, but we're not selling at the kind of global premium that we'd like. We're selling, for very nice premium in Europe, because Europe appreciates the organic premium and the value of the product and has more experience with the product.

Unfortunately, in Brazil and in China, customers still view this product or this family of products actually, because we've developed a whole family of products, still is too close to commodity and tend to negotiate, taking into account the effect of the potash price. So, the bottom line is, we're getting a good business in Europe and not that great business in China and in Brazil. And we need to continue to educate the market and to demonstrate the value that the products bring to the table. And that will help us get from, a business that has, relatively normalized profitability to, higher profitability. It's not home run fertilizer with 30% EBITDA. But, we believe that over time we could achieve a 15% plus EBITDA this year. It'll barely be double-digits, whereas last year we made a very nice 20% plus EBITDA. Hope that answers.

[Joel Jackson, BMO]

Thank you.

[Raviv Zoller, President and CEO]

Thank you.

[Peggy Reilly Tharp, Vice President of Global Investor Relations]

Our next call is coming from the line of Rahi Parikh with Barclays. Rahi?

[Rahi Parikh, Barclays]

Perfect. You guys can hear me?

[Raviv Zoller, President and CEO]

Yes.

[Aviram Lahav, Chief Financial Officer]

Yes, yes.

[Rahi Parikh, Barclays]

Great. Well, I just have one question. So for IP, as you've seen there's been some issues in the last quarters, though external. I'm just wondering is there, like, any game plan to kind of help the sector besides, like, what's been happening? Is there any strategy to go around the lower demand, the electronic slow down, just your thoughts on that? Thank you.

[Raviv Zoller, President and CEO]

Thanks for the question. Look, the flame retardants for electronics and construction, there are very significant component of our offerings. So, it's not like we can circumvent that. We're suffering from the cycle like everybody else. It's a significant downturn because, normally, when there's a slowdown, we produce we produce a little less. We take the disciplined approach. We demonstrate the value to our customers, and are able usually to affect the strong pricing.

Currently, the drop in demand is so significant. There was so much stock built into the supply chain. And it just, has taken quite a while to get that stuck out of the supply chain, and the demand still has not built back up. I'm talking about the demand for TVs, laptops, cell phones, still the demand is not back. Construction, which is also a significant component there the cycle is longer.

So, electronics is expected to come back quickly, for refill of product, on construction, given the interest rates, and overall activity globally, it's going to take longer, put that together with abundant supply. That as I said, due to the dynamics that have caused the pricing to go down below the cost of some of our competitors, supply is going to come down somewhat in the coming months. And as supply normalizes a little bit, and as demand normalizes, we expect to go back to normal.

In the first half of the year, we thought that, if we sold -- if we didn't participate in the lower pricing game, we thought that we would get a better result. Unfortunately, we didn't, because the cycle was longer than we expected. We are keeping our market share with our long-term customers now. So, we're going to lose less of volume in the next few months, and we're going to allow the market to take its course for a few more months, until we get back to normal.

The end game here is that, we believe in the fundamental strength of the market. We believe that we're going through the bottom side of a cycle, bottom that hasn't happened for 15 years. And we were sure that the market is coming back. And, the only question is how many more months we'll have to endure the current situation. Right now, we're positive that we're not going to see a significant return to normalized business in the third quarter. Fourth quarter, the jury is still out, but typically the fourth quarter is a weaker quarter. And, customers are not looking to build up stock towards the end of the year. So my guess is that, we'll start seeing some more significant improvement in the beginning of 2024.

[Aviram Lahav, Chief Financial Officer]

Just as a reminder.

[Rahi Parikh, Barclays]

I'm sorry.

[Aviram Lahav, Chief Financial Officer]

Rahi, just as a reminder in mid-June, when we came out with the new guidance, we did a pretty dramatic $200 million, we chopped-off directly on the bromine business, because already at that time, and that's what we guided, we did not see the recovery more suddenly in Q3 and maybe not even in Q4. So it's, in a way it's covered by this, but, again, it's a good question, and we're waiting for the recovery. Please.

[Rahi Parikh, Barclays]

Yes. Makes total sense, and thanks for clarification. And, just so that the -- we can get the clarity. The stock that's built up, it's all high cost, high cost stock that you're trying to get through.

[Aviram Lahav, Chief Financial Officer]

Yes.

[Rahi Parikh, Barclays]

Correct? Because it's made probably in the first half of this year, last year.

[Aviram Lahav, Chief Financial Officer]

Sure.

[Rahi Parikh, Barclays]

Okay. Perfect. Thank you so much.

[Aviram Lahav, Chief Financial Officer]

Thank you.

[Raviv Zoller, President and CEO]

Okay. So, I understand that we don't have any more questions. So, I want to thank you all for participating in this call and joining us, as usual. We appreciate your questions and appreciate your following us and supporting us.

And, with that, thanks again to our employees at ICL. Thanks to my colleague, Aviram.

[Aviram Lahav, Chief Financial Officer]

Thank you, Raviv.

[Raviv Zoller, President and CEO]

Helping me on this call, and looking forward to coming back to you next quarter and reporting about our progress. Thank you very much. Take care.

[Aviram Lahav, Chief Financial Officer]

Thank you.