Be before us. Operator, at this time, why don't we open the line up for any questions?
Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Frank Mitch with Spermium Research. Please proceed with your question.
Thank you and good morning. Hey, Peter, if this happens to be the last Huntsman conference call, which very well may be depending on when you close the transaction, just wanted to say I appreciated the commentaries over the years.
With respect to the chemical industry and for Huntsman, but also I must say I did find your historical factoids very educational when you were, you know, explaining the 1794 whiskey rebellion, et cetera. So I did want to offer my thanks publicly for all that.
In terms of what's going on, listen, I mean, in the prepared commentary, there was a comment regarding the impact of new MDI capacity on the U.S. market. I was wondering if you could characterize the current market and the near and midterm outlook for MDI, particularly here in the U.S. Well, Frank, thank you very much for those kind words.
I'm still hoping to be able to find an ancestor that participated in the Whiskey Rebellion and hopefully was on the front lines of the fast-changing technology to bourbon.
But, you know, that's something that we have to put up with, usually somewhere around the world at any given point. So, yeah, we can hardly use that as an excuse. We need to continue to be focused on generating cash, on getting margins to expand, and looking for technological opportunities. And that's going to be the three main focuses of Huntsman in the fourth quarter.
That's very helpful. Much appreciated. And then, listen, I mean, I know the transaction hasn't closed yet, but in terms of the conversations that Olin and Huntsman have had pre-integration, I'm wondering if there have been any positive or negative surprises, and particularly looking to see, you know, the thoughts on the near term, 300 million of synergies, and then obviously the 100 million coming in 2030.
So, any comments that you could provide there?
No, look, I believe that, as you know, this isn't our first attempt at an MOE.
It is much easier to do it where you have cultural overlaps and similarities.
In this case, one has an office in Spring, Texas, the other in the Woodlands.
And I think the communications and the cooperation between the two have been outstanding.
I would say that when we first came up with the $300 million number, I felt pretty good about it, but I wouldn't say that there was a lot of data that went behind it. We were throwing out a lot of broader estimates and numbers. Since that time, I feel very, very confident about it. Initially, I think it was more of a target as an objective. Right now, we have very clear lines of responsibility, areas of execution.
Timing, group leadership, and so forth. And I would dare say that there's not a day that goes by where we don't have multiple people engaged, where we can legally engage at this point, to further discuss that and look for additional synergies. So I feel very good about where we are right now.
Our next question is from Patrick Cunningham with Citi. Please proceed with your question.
Hi, good morning. Maybe just on European polyurethanes, you talked about it being EBITDA positive for the quarter, obviously still a very challenging environment. You've done a lot of restructuring work in that business, but how do you position that business if we have another sluggish demand environment, volatile variable cost structure? Is there more to be done there from a cost takeout perspective, or is it just a function of price discipline?
and where you source raw materials from going forward?
Well, I think that we need to continue to look at all of the opportunities that are before us, and we need to make sure that we calibrate the business around the market needs and expectations.
Certainly with the Olin-Huntsman merger that is coming, I think that we're going to be in a better opportunity from raw materials
to be able to access perhaps better raw materials and better economics and so forth, but we need to, at the end of the day, remain focused on growth. Where do we have new opportunities? We saw growth in Europe this last year over the prior year of greater than 10% in our automotive applications. That's not because they're building 10% greater number of cars. It's because we're finding new applications
in automobiles. So when we talk about growth, we need to continue to look at our fixed costs and make sure that our customers are either paying for the services that we're giving them or we're going to have to cut those services further. And we need to look at our variable costs and how do we get around those? How do we improve those? And longer term, how do we position the business, especially as contracts expire?
That were done four or five years ago before Europe has really fallen into this mass suicide of deindustrialization. How do we focus on those things? Look, I know I've been an outspoken critic of Europe, and I think that they certainly have earned that criticism. But there are a number of areas in Europe when we look at aerospace, we look at building out the power grid, we look at EV vehicles.
I just mentioned, here we are at MDI talking about seeing double-digit growth year-over-year
in some of these applications. There are opportunities in Europe. Europe is going to continue to innovate. It's going to continue to capitals on lightweight materials and so forth, and we need to make sure that we're investing in the right areas and that we're focused. At the same time, we need to exit certain areas that are going to be energy intensive, that are going to be areas that will be leaving Europe, and so we still – Europe still remains the world's second largest
Just MDI market after China, and we need to make sure we capitalize on that.
Very helpful. And then maybe just on advanced materials, you know, you already talked a bit about, you know, aerospace, you know, grid infrastructure. I guess, you know, given this strong level of growth, you know, what is your sort of expectations for growth rates in 2027? You know, what sort of operating leverage you should have there? And, you know, how sustainable are these rates, you know, without requiring additional capital expenditure?
Yeah, I think, first of all, I think that what we're seeing today really is the fruits of investments that were made two years ago, three years ago. We did some large investments. We broadened our technology, our application, our know-how. You know, I think that those investments oftentimes in a more commoditized business, when you make acquisitions and when you invest in R&D, you have a tendency to see results in two or three quarters.
Advanced materials is a little bit of a different division. Sometimes it'll take a year or two to get qualified. Sometimes it'll take a year just to be able to get in the door to get qualified on something like aerospace. If somebody were entering today to try to displace us in aerospace, I would dare say you're waiting out five to six, seven years in some applications to even begin to compete.
So what we see today, I believe, is more than just a decent quarter. It is what we've invested through acquisitions and through deployment of capital. A couple of years back, we're seeing that. I would expect through 2027 that we're going to continue to see GDP plus sort of growth and opportunity.
Our next question is from David Boglieter with Deutsche Bank. Please proceed with your question.
Thank you. Good morning. Pete, just on the MDI capacity in North America, I know you didn't want to comment on it, but how is the industry market absorbing this new supply that we're seeing, and what do you expect to happen in 2027 as industry, if there's no demand inflection, how the industry deals with this new supply?
Oh, I'd say it's probably going to be a bumpy, transitory time. As you'll see, this new supply will be replacing what has traditionally been imported materials coming in and so forth. But look, not every customer out there is just looking for necessarily a lower price. Innovation does pay off. Good service does pay off. Reliability does pay off.
And again, I don't want to put too much emphasis on capacity utilization. It's got to be around a focus on growth, your fixed costs, your variable costs, and how you run the business.
Thank you. And just your thoughts on the industry broader. Peter, I always appreciate your thoughts here.
You know, the Olin-Hunson merger looks pretty compelling, makes a lot of sense.
Why has the industry not taken your lead, given the pressures we're seeing and we've seen further M&A moving forward here?
What's holding back, do you think, the broader industry from doing what you guys are doing right now?
David, that's an excellent question. I will say that if I had to pick somebody in the industry that we could merge with in a merger of equals, you know, to some degree you do have a limited field and you do have, you know, who is available and who is interested to do a merger of equals.
So just because we're saying, well, Company X would be a great fit for Huntsman, or Huntsman may be a great fit for Company X, doesn't mean that the timing is right, management is right, and everything else. As we look at Olin, I will just say that when we look at the integration, particularly on the supply chain integration, and Huntsman's desire to be more competitive on the upstream side, that integration into everything from caustic to chlorine to VCM and so forth,
EDC, being able to move up to that, aside from benzenes, and if we were to integrate ourselves
to a benzene producer, you're probably integrating yourself with a refiner, right?
And that doesn't, in my opinion, that doesn't make a lot of sense. Olin makes the most sense from a pure molecular point of view. When I look at it from a management and a cultural point of view, as I said earlier, I have been more than surprised at the fit, the relationship that Ken Lane and I have built, that our respective teams going down the lines have been
built, and that's going to be demonstrated, I think, very well once you have a closing that takes place. Why these things don't take place more often? It's a very good question. We need it in this industry. As I've said in the past, we compete more against countries than we do companies. We compete against national interests in trade policies than we do against specific products and pricing.
And as you start looking at the Middle East and the lack of what has been in the past a very stable region of supply, the volatility that's coming from the Middle East, you look at the trade winds and so forth that are coming from China, it's going to continue to be a tumultuous market. And I think size and geographic location is going to matter.
Our next question is from Alexi Euphremove with Barclays. Please proceed with your question.
Good morning, everyone. Peter, as you know, I'm sure European Commission is discussing
more robust trade protection measures, specifically for the chemicals industry. Do you think it will make a difference overall and for your business in particular?
Yeah, I think in certain areas we're going to see some opportunity, perhaps, especially in epoxies coming in from Europe.
But look, let's be honest. Europe needs to be protecting its chemical industry, but more than protecting its chemical industry, it costs more in tariffs and costs to go country to country within Europe than it does to go from Europe to the U.S. Europe needs to reform Europe, and Europe needs to get an energy policy that's going to incentivize and is going to advantage the chemical, the steel, the glass, the cement,
manufacturing across the board. So I'm glad to see them taking a position in some of these areas where they find that there's unfair trade, but it needs a lot more than just a tariff here and there.
Thank you, Peter. And maybe as a follow-up, you mentioned energy. This could be a tough winter in Europe, energy-wise. How are you managing this at Huntsman?
Could you see, I don't know, assets shut down, as you see in some other industries?
And maybe if not Huntsman, could you see your competitors shut down assets in MDI or some other products that you care about?
Well, we continue on a regular basis, and that's on a weekly, daily basis, to look at not just our own assets, but the assets of our suppliers and of their suppliers. We may be in a great position when we're making money in a product line, but if our suppliers are on the brink of shutting down or their suppliers are on the brink of shutting down, we need to make sure that we understand that.
So we need to stay focused in those areas, and we need to continue to work with our suppliers, even in areas where we've got relationships and contracts with our suppliers.
We've found that some of our suppliers have been willing to give us discounts today to extend contract terms going into the future.
How can we take pressure off of the issues today?
When you're talking about $34, $35 per MMBTU gas, I mean, mind you, that's 20 times, 20 times higher than what we're seeing in West Texas and along the Houston ship channel. That's just astronomical.
And so, at the end of the day, we can talk as much as we want to about short-term issues.
We've got to get prices up to be able to offset and to mitigate these sort of costs coming through. So, at the end of the day, it's going to boil down to price discipline. We've led seven prices this past year, and we've been successful on some of those. Others of them, the industry's not supportive of them, but we need to continue to push for pricing at the end of the day.
Our next question is from Jeff Zekoskas with J.P. Morgan. Please proceed with your question.
Thanks very much. For the nine months, Huntsman has delivered minimal cash flow, your sort of cash flow break-even.
Are you going to be able to cover your dividends and capital expenditures with operating cash flow this year?
Yeah, Jeff, it's Phil. CapEx we set, we expect to spend about $160 million this year. Free cash flow was an inflow in the third quarter of $82 million. You're right where we sit today. There will be a large working capital unwind in the fourth quarter, and our cash conversion cycle declined year on year, and I expect it to decline again Q3 to Q4, and Q4 versus Q4 last.
It's true that working capital has been difficult this year with an elevated pricing raw material market, but I remain confident that we'll be able to cover our dividend for the full year and have a substantial cash inflow in the fourth quarter.
Okay. Interest rates, you know, if you look at the 10-year rate, we're now at 4.9, and maybe for the year we've averaged 4.5, and last year we were at 4.2. Given the interest rate environment, when you look at MDI volumes for 2027, if things stay where we are now,
should the MDI industry grow at a slower rate in 27 than it did in 26? And how fast did it grow in 26, or how fast is it growing?
Jeff, I think that as we look at 26 into 27, you're probably looking at, I would say, probably flat conditions, or maybe similar to what we saw in 26, which was an industry growth rate of about 2%. Look, interest rates are up, mortgage rates are up, but if you look at them on a 50-year basis, the average interest rate today is exactly where it has been on the market.
It has been on average over the last, since the early 1970s. This is about the industry not waiting for interest rates to go back to 2% or 3% or 4%, because I don't know if they will ever do that, but the industry having to adapt.
We'll probably be building smaller homes, homes with less basements, more townhouses rather than individual homes, and we're hearing that from our construction customers. We're starting to see those sort of trends.
In starter homes, they've got to come down in price if interest rates aren't going to happen.
That's not going to happen overnight. It may not even happen within a year, but I think that as you start seeing where building costs start to plateau and come down, incentives start to be put into place and so forth, I think it's more of how does the industry adapt to these interest rates and mortgage rates, which are really more normal than abnormal at this point.
Our next question is with – it's Mike Harrison with Seaport Research Partners. Please proceed with your question.
Hi, good morning. I was hoping that you could talk a little bit about what you're seeing in the spray foam insulation market, given that underlying construction and renovation activity still remains soft. I'm curious, are you still capturing your fair share of growth in spray foam, or are you seeing that there are more competitors in this space maybe starting to impact volumes and margins?
Well, North America, which is our largest market, and I'm talking about both spray foam and insulation, so that's not just when you spray foam when a house is being remodeled or constructed, but also insulation panels and so forth. Look, that industry is being hit just like the rest of the construction industry, but as we look at our numbers from the prior year, we're still up low single-digit numbers from the prior year, and year-to-date, we're still up single-digit numbers.
But again, longer-term, until you start to see a real turnaround in housing and so forth, you're not going to see real substantial growth like we saw a couple years ago where you're seeing pushing 10% growth.
All right, and then in the advanced materials business, you said you expect power to be growing through the end of the decade,
and I think you mentioned the need for some targeted growth investments. Are you guys capacity constrained anywhere today? Maybe just give us a sense of how you see the need for additional capacity playing out.
We have got plenty of capacity, and if anybody out there wants any more product, we're willing to sell it to them.
Our next question is from Josh Spector with UBS. Please proceed with your question.
Yeah, hi. Good morning. I'd be curious where divestments stand on the priority stack as you look at Olin Huntsman next year. I mean, I imagine six, seven months ago, that was kind of optionality. In your mind, is that a little bit more of maybe a must-do to try to delever? And just thinking how you prioritize that with the cost savings and what you're aiming to tack as point one, two, and three once the deal closes. Thanks.
Very good question. And look, I think that is something that a new board that will be formed and announced here in the coming months will be tasked to working closely with management to make sure that we're aggressively looking at the balance sheet, the needs of the company, and positioning the company, NUCO, in a position.
But for me to comment further on that as a shareholder of Huntsman, not Olin Huntsman, I think would be misplaced.
Okay, fair enough. I'll leave it there. Thanks.
Thank you. Good question. Give us some time.
Our next question is from Matthew Deo with Bank of America. Please proceed with your question.
Good morning, everyone. This question has kind of been asked a few different ways, but maybe
I just take a more direct path, right? Obviously, I guess Peter said volumes up low single digits
for core polyurethanes, but as we look into 2027, right, given the macro, given rates, are there any measurable tailwinds that we can count on to drive growth year over year in 2027 in that business? I mean, like the bridge items, maybe the 10 million in 4Q is a reasonable addback. Is there any other relevant bridge items we need to be aware of? Or is kind of flat profitability in 2027 a reasonable addback?
reasonable scenario for PU? Well, I think that as you look at the business, we've got an excellent elastomers business and we're selling product more than just into the construction housing materials market. Again, I would just go back and look at 2025 versus 2026. 2025, we actually built more homes as a company as North America than
we did in 2026. We saw housing starts drop in 2026 by about 100,000 on an annualized basis over 25 yet. The company did 100 plus million dollars better. We'll do 100 plus million dollars better in 26 and 25. So I don't want to get too transfixed on where's an extra percentage point or not of growth taking place. This is a great portfolio that's going to continue to focus
yes on traditional applications like home building and so forth. But when we look at areas of innovation, areas around automotive, aerospace, of the power grid build out, when we look at opportunities to improve our own structure to match the demands of the market, and does that mean that we need to have a larger or smaller footprint in certain areas of R&D as we look at everything from our
Last summer's business to, you know, the appliances going on down through EVs and lightweight materials
and coatings and so forth. I don't want to get too transfixed because housing isn't growing as fast
as we had hoped that it would, that there's nothing we can do. As I said in my prepared remarks,
worst thing we can do is just sit around and wait for the markets to turn. 27 is going to be a better year than 26.
It's going to be a better year because we have opportunities to cut costs, to build a great business,
to continue to build, continue to integrate, and I would just be absolutely shocked if we're at the end of 27
and we're not looking back at a materially better year than we did in 26.
That's really helpful, Peter. I appreciate it. I'll leave it there.
Our next question is from Hassan Ahmed with Alembic Global. Please proceed with your question.
Good morning, Peter. Peter, a question around MDI pricing. Obviously, you've seen better pricing across all three regions and more price hikes on the table as well, but obviously you're expecting, as you talked about, a fairly sort of major rise sequentially in benzene pricing.
So just a question around whether you feel that the price hikes you've implemented and that are on the table will be enough to offset in Q4 this benzene price hike you're expecting.
Well, we're in the process of putting those prices through right now, and I would say that given where we've seen in the last week or so, you know, we need to be able to see prices continue to move up just as we're seeing raw material prices move up.
I would say our biggest area that we're seeing right now of inflation expansion is in Europe, particularly on energy costs. As we look in third quarter to fourth quarter, benzene prices are up a bit, but not nearly as much on a per pound basis or per ton basis than the impact of natural gas and the impact that that is having on our business.
So, we're going to continue to see pricing will be holding up in China. We need to see increases in Europe, and the U.S. is going to be a mixed bag.
Very helpful, Peter. And as a follow-up, again, just trying to sort of get a sense of the EBITDA generation for standalone Huntsman in 27, you know, barring any cyclical recovery, you know, what sort of EBITDA improvements should we expect, you know, from the cost-cutting, operational efficiencies, and the like that you guys have implemented, you know, 27 versus 26?
Well, I think that at this point we'll be putting together our 27 budget here in the coming months and be looking at those sort of opportunities. So much of that is going to depend on what sort of variable costs that we're going to be absorbing on energy prices and so forth. Tariffs will continue to be a headwind or tailwind, and as we look at the global
economic situation, hopefully that'll be more of a tailwind than it is a headwind. But as we look at this, you know, in advanced materials, we're going to continue to see growth and opportunity in places like power, industrial applications, our aerospace, and performance products. We're going to see, continue to see good momentum, I think, in our performance of means. We put an expansion out on, put an expansion we started up this past year.
for ultra-clean amine products. We'll be going into chip production and cleaning solutions for the tech industry. We're starting to make a lot of traction in those areas. There's, there's, I don't think, Hassan, you're going to see any one big area that we'll look back a year from now and say, wow, that was a, that was a massive turnaround. It's going to be just a lot of small applications, pricing, discipline,
cost discipline across the board and, and, and being able to make sure that we're in the right applications to be able to accomplish those. So I don't think it's going to be any one thing. I think it's going to be a lot of variables across the board.
Our next question is from John Roberts with Misuho Securities. Please proceed with your question.
Thank you. The clean room teams have had another quarter to analyze data from both companies.
Any new learnings coming out of that additional analysis?
Oh, I think that there are learnings that come out, you know, on a weekly basis, but I would – I'm looking down here at our GC, and she's shaking her head that I should be talking about these things. So, John, I'm going to just say that we continue to listen, we continue to learn, and we continue to make advancements.
Maybe a follow-up, then. What are you seeing currently in China, both on the MDI side and on your POTBA, JV?
I would think stability. As we look at the domestic economy, I would say that it's – no, I would say that if I had to use one word, it would be stable. And the growth that we're seeing is mostly through export-driven growth.
And on the joint venture, John, MTBE margins have come down a little bit in the past three to four weeks. PO alpha, so propylene oxide above propylene, have remained relatively strong. They've come back a little bit. I think we've guided to the fact that 3Q was clearly above 3Q last year, and then the fourth quarter we'd expect to be relatively similar, 4Q to 4Q last year and relatively similar to the third quarter.
Our next question is from Abigail Eberts with Wells Fargo. Please proceed with your question.
Thanks for taking my question. Just a quick clarifying one on Rotterdam. Any other information you can provide to us as to why that happened?
And then on the 10 to 15 million, is that evenly spread between September and October, or is that more heavily weighted towards October? Thanks.
Abigail, it's Phil. The split in terms of the 10 to 15 million, you should think about that as a 5 million impact in September and 10 million in October.
That's the way to think about it from a modeling perspective. And the outage was begun initiated by a third party, but the plant is back up and running as we sit here today.
Thank you. Our next question is from Salvatore Tiano with Bank of America. Please proceed with your question.
Yes, thank you very much. I want to ask company-wide, I know you provide some very interesting end market commentary in your prepared remarks,
but obviously it seems like the growth driver right now is the industrial end markets. So, can you help us understand a little bit, Hansman, as a whole, what is the exposure to more industrial end markets versus housing versus consumer markets?
Yeah, so Sal, about 60% of our volumes very roughly go into construction. That's across all of infrastructure, commercial, and residential. About 15% is into automotive. So the remaining 25%, you've got a host of different end markets from gas treating all the way through to traditional industrial markets overall.
The industrial markets themselves, you could classify that as, say, 10% to 15% of the remaining amount.
So a decent-sized exposure, and one of the multiple reasons that advanced materials has improved year-on-year alongside aerospace and power, particularly when you look at the industrial PMIs that have come through, and one of the reasons that we've improved year-on-year in our elastomers business in polyurethanes, which, again, is going into some of those industrial markets.
Okay, perfect. And on the regional side, you know, America's obviously did so much better than anything else. I think you said 5% across the board. Can you clarify a little bit the regional performance for advanced materials at 12% volume growth? Was it a little bit more equally split, or was this also much more heavily in the Americas?
We saw it across all three regions, and that's because you've got aerospace growing around the world from where it came in 2025, as well as the power infrastructure grid bluntly being built out in all three regions out of necessity, given the electrical demands that are required around the world and the reinvigoration of those grids. So we've seen it all around the world with advanced materials.
Our next question is from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
Yes, thank you very much, and good morning. Peter, maybe six weeks ago, one of your global MDI peers announced that they're in advanced stages for a feasibility study on a new MDI plant in India, and that's, of course, after having invested a fair sum at Geismar in recent years.
So my question is, are you surprised by that, given how poor the industry margins have been over the last three or four years, or is it maybe less surprising because by the time this new capacity comes on towards the end of the decade, it'll be needed? I'm very curious to kind of hear your views on reinvestment economics and kind of the shape of the cycle and when the next peak might be.
Kevin, it's a very good question. I have the foggiest idea of what goes on in boardrooms when somebody decides to take a billion-dollar throw to add more capacity in just about any chemical in our industry, so I won't specify MDI. But there's plenty of capacity to meet world demand for years to come. But that's just my opinion. I have no idea what
It goes on in the decision-making process. So I'll just leave it at that.
So it sounds like as a follow-up, Peter, if your balance sheet was less constrained, even if it were clean, you Huntsman would not be contemplating MDI expansion at this juncture. Is that fair to say?
I think I've said in the past, Kevin, I may be wrong, but so long as I was CEO, we would never build a grassroots MDI plant anywhere around the world. And I think we've done a pretty good job in doing that, at least on our own. We wouldn't be doing that. Now, partnerships and so forth, maybe that's something you want to consider, but I think there's plenty of capacity, not just in MDI.
Most of MDI, but most chemicals. Our next question is from Aram Viswanathan with RBC Capital Markets. Please proceed with your question.
Hi, good morning. This is Adam on for Arun. Congratulations again on getting closer to closing the transaction. Just want to echo the thanks on providing all this market detail over the years.
You know, if we look at EU margins, I think they're up about 150 basis points year over year. How much would you attribute that to volumes versus price cost? And what do you think a healthy EBITDA margin will show that business is long term? You know, I know it's been 20% past. Is it still feasible if we get volumes back?
Or, you know, like you said, China is leaning on more exports as their domestic growth is challenged.
You know, how do you think about, you know, those margins split in your term and out the curve?
Oh, I think at the end of the day, it just comes down to the fundamentals of being able to price your product to the right customers, right applications, and cover your costs.
As we look at the European markets, that has been more key. Sound management has been more key than the economic growth that hasn't taken place in Europe. And as we look at our other products around the world, I think it's going to be mostly discipline on pricing, applications, and costs. You've got to have those three things in order, and if you do, you'll see benefit.
Yeah, that makes sense. And just thinking about China a bit, how do you guys think about, you know, all of this export pressure? And it seems like that's really what's driving a lot of the global pricing at this point. Is this really just a function of China GDP growth? How do you think about supply to money coming out of the region into the export markets?
Oh, look, exports from China certainly aren't helping the global chemical markets. But let's be honest here. 20 years ago, the U.S. was exporting on a percentage of our GDP and as a percentage of our production. 25 years ago, the U.S. was exporting as much around the world as China is. I mean, we're merely just seeing the lumps that come.
And China, I don't think that – I mean, when they started with the capacity that they have today, it's been up and running now for the last, let's just say, two years.
These were investments that were decided upon six, seven, eight years ago, that were built over the course of the last three, four, five years, and that have come online in the last year or two.
And in that time when a lot of those projects were contemplated, China was still going through an enormous housing boom, probably the largest housing boom in the history of Homo sapiens.
From the late 70s, 78, 79 up through 2020, 2019, China put half a billion people in vastly improved houses and so forth. I guess as you look at these macro trends, as you look at them right up close, they tend to be very chaotic.
If you step back and you look at where we were a decade or two ago, and you calibrate the business, you calibrate demand, you calibrate your strategy around these macro trends, these are cycles and movements that will always be here to some degree or another.
And we just, we just have to learn to adapt to them and to manage around them. And like I said, the worst thing you can do is just sit around waiting for things to get better. The simple fact of the matter is, we're not going to return to 2021 exact economic conditions of a post COVID recovery. But someday we will see durables in housing come back in North America, we will see Europe finally get its act together and manufacturing determine, you know, what are going to be the long term growth engines for
Europe. China will absorb as they start to have an economy where the per capita GDP is somewhere just north of Uruguay, you've still got plenty of growth to take place in China. These are great markets, they're going to continue to be great markets over the course of the next generation, and they're going to demand better than GDP growth from a great industry that's going to continue to supply their needs and housing and appliances and medicine and tech.
You can't do without our industry. So we'll be doing just fine. I mean, if we're going to sit around and blame China for everything, we're on the wrong path if that's it. China's a great market. It's going to continue to be a good market, and we'll gladly be part of it.
Our next question is from Daniel Rizzo with Jeffries. Please proceed with the question.
Hey, thanks for fitting me in. So, just with everything you've talked about in terms of taking costs, I was just wondering how we should think about, excuse me, incremental margins and operating leverage when, given the cost cuts you've made, when things actually do ultimately return. I would imagine it would be considerably higher, but I was wondering what your thoughts are.
Yeah, I would hope that as we look at areas where we do have that tailwind in pricing and so forth, yes, we ought to be able to, I would say, I would hope that we ought to be able to exceed traditional margins, and we've seen this in times of past where you will see margin recovery, but you also see the benefits from the tough decisions we made today that not only put us in a position
to compete more aggressively in the future, but also in a position to be rewarded more aggressively in the future when those pricing cycles shift. Yeah, and Dan, on incremental margins, typically, as long as you're controlling your cost base, which we are in terms of the cost programs we've had in place, then usually we'll get incremental margins of around that 30% level, and I think that's what you've seen this year as you've moved from the 2025 bottom to where we're projecting for 2026.
Okay. And then one thing you mentioned was A&D, it's kind of hard to get into given that you have to qualify and it takes a couple years. I was wondering, and you mentioned doing acquisitions in the past, I was wondering if you can do acquisitions now in this market, given how it's growing, or it's not something you're going to pursue at this point given everything else that's going on?
I think that as we look at the growth that's taking place, we feel that with our manufacturing capabilities, our technical capabilities, that we're in a very strong position to be able to meet the opportunities we're seeing in power and aerospace, to be able to meet that growing market with organic growth, what we have internally, the manufacturing footprint that we have, the R&D capabilities we have.
I don't believe that we need to be buying assets today to take advantage of that growth.
And with that, operator, I think we're getting to the top of the hour, and why don't we wrap up the call here?
This concludes today's question and answer session. Ladies and gentlemen, thank you for your participation.
And this concludes today's teleconference. Please disconnect your lines and have a wonderful day.
Thank you.
