Earnings Call Transcript
Orion S.A. (OEC)
Earnings Call Transcript - OEC Q3 2023
Operator, Operator
Greetings, and welcome to Orion's Third Quarter Financial Results Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. 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, Head of Investor Relations
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 our 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, CEO
Thank you, Wendy. Good morning, everyone and thank you for joining our call today. As you can see on slide three, 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've ever posted for both figures. Beyond this, we also reported nine-month record adjusted EBITDA of $266 million, up 7.5% and adjusted diluted EPS of $1.76. Our nine-month adjusted EBITDA of $266 million is just $1 million short of our entire 12-month adjusted EBITDA just two 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 two operational milestones. First, we continue to ramp up our first-ever greenfield facility in Huaibei, China. Customer qualifications, sales, and operations are all progressing. Second, we progressed our final air emission upgrade in the US in the third quarter. I'm happy to say the controls are now operational and final testing is scheduled for this quarter. We'll also be completing an important safety upgrade at the same site. It is 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 US 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 casts 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 US 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 appreciated 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 through 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 1100 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 and 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 plants, and introduce new products to the market. We've achieved a number of recent wins in the battery, wiring, 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 surging 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 EVs 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 in a less than robust manufacturing environment this year, the underlying trend is with us. Additionally, the EU ban on Russian carbon black begins mid-year 2024. While some Russian carbon black is being bought in the EU today, one large rebuking 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 four. 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 US TMA data, US tire shipments were up 4% year-over-year in August; however, tire manufacturing is lagging that recovery. Now, all this is based on US data. However, we continue to believe the picture in the EU is similar, albeit perhaps with a higher level of tire imports. With that, I would ask Jeff to provide additional insights into our financial results.
Jeff Glajch, CFO
Thank you, Corning. Moving to slide five, we have presented this slide for a few quarters. It effectively illustrates our growth over multiple years. In 2023, we anticipate that our EBITDA will increase by 7% compared to 2022, even with lower volumes. Our progress in return on capital employed has continued over the past few years, during a period when we invested substantially in air emissions control. The ROCE we've achieved is significantly above our weighted average cost of capital, with the trailing 12-month ROCE at 17% as of the end of the third quarter. This important metric keeps us aligned with our shareholders in managing their capital and ensuring the company's long-term sustainability. On slide six, you can review our consolidated results for the third quarter. Volume for the quarter remained flat, with gains in specialty driven by new capacity in China, which were offset by lower volumes in EMEA and the Americas. Improvements in contractual pricing for rubber helped counteract the decline in revenue, which was impacted by lower oil prices that we pass through to our customers. While our profitability metrics were similar to last year, we faced some challenges during the quarter. Cogeneration profitability decreased because the comparable quarter from 2022 experienced extraordinarily high electricity prices in Europe. We anticipated that this would likely negatively impact earnings, as we pointed out in August. The startup of Huaibei also influenced our gross profit and GP per ton metrics across our businesses. Additionally, we encountered some cost absorption issues in specialty. Collectively, these factors reduced our gross profit GP per ton and adjusted EBITDA by approximately 4% each compared to Q3 2022. Nevertheless, the third quarter this year was solid, and as Corning stated, it was our second highest Q3 ever, falling just $3 million short of last year's adjusted EBITDA. Slide seven illustrates our year-to-date results. We observed reduced volume in rubber across most markets, along with the lower oil price pass-through which resulted in a 9% decline in revenue. This decrease was somewhat offset by stronger contractual pricing, which positively impacted gross profit per ton. Gains in GP per ton from the first half of 2023 were somewhat dampened by the Q3 challenges mentioned earlier. Year-to-date EBITDA increased by over $18 million, or 8%, while adjusted diluted EPS rose by $0.06. We achieved these increases despite volume declines and a significant reduction in cogeneration profitability due to decreased power prices in Europe compared to the extraordinarily high prices from last summer. On slide eight, the benefit from price/mix improvements in Q3 was driven by gains in contractual pricing for rubber, but this was more than offset by reduced volume and lower cogeneration profitability, which affected costs. On slide nine, specialty in the third quarter saw increased volumes largely due to our new plant in China, while other markets remained relatively subdued due to ongoing softness in demand. Gross profit per ton was lower compared to last year's Q3, attributed to geographical and end-market sales mix, as well as diminished cogeneration profitability. Notably, despite this specific product mix, our pricing remained stable throughout the quarter. Slide ten outlines the main factors influencing adjusted EBITDA for the specialty business compared to last year, where we noted that adverse mix impacts, reduced cogeneration profitability, and some fixed cost absorption contributed to the results. On slide eleven, the decrease in rubber volume for Q3 was influenced by lower demand in EMEA and the Americas. We experienced an increase in gross profit and GP per ton due to contractual price increases, but this was partly offset by lower cogeneration profitability and startup-related impacts for the quarter. Q3 GP per ton reached $386, which, although lower than the previous two quarters, still exceeded the $364 level of Q3 2022. We expect the Q3 2023 level to be the annual low point, with expectations of recovery above $400 in Q4. Slide twelve highlights the key factors affecting adjusted EBITDA for the rubber business, where strong contractual pricing was a major contributor, though this was counteracted by lower volume and diminished cogeneration profitability. We attribute the decline in volume to both decreased end customer purchases and an increase in tire imports into European markets. On slide thirteen, you can observe the positive impact of our improved cash flow on our debt situation. We have reduced our net debt by $102 million in the first nine months of 2023, bringing it to $756 million. Our debt to EBITDA ratio is now 2.29 times, down from nearly three times in mid-2022. We have also repurchased $59 million worth of shares this year and $63 million in buybacks since initiating our program in late Q4 2022, representing nearly 5% of our outstanding stock. We will continue to explore share repurchases using a portion of our free cash flow. Additionally, we announced in the early fourth quarter that we renewed our senior secured revolving credit facility, intentionally reducing it from €350 million to €300 million due to our stronger cash flow. The facility, which has a five-year term, was oversubscribed by 20%. Our aim is to continue strengthening our balance sheet, lowering our total net debt, and improving our net debt to EBITDA ratio. We have made significant strides in all these areas over the past year. Before I hand the call back to Corning, I want to highlight the substantial increase in our discretionary cash flow conversion as we have enhanced our profitability and nearly completed our EPA projects. I anticipate that the significantly improved conversion rate we have achieved in 2023 will carry on into the coming years.
Corning Painter, CEO
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 is 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 and the business cycle, but tires do wear out. Beautiful black cars increasingly powered by batteries continue to be made and black Elysia 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 Huaibei facility, Kappa 10 conversions, expanded customer applications, facilities, debottleneck activities, and the construction of the new acetylene base 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 continue to evolve favorably and we expect this to continue in the foreseeable future. Fourth, the US air emission systems at 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 to 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
Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from Josh Spector with UBS. Please proceed with your question.
Josh Spector, Analyst
Hey, guys. Thanks for taking my question. I guess, first, I wanted to ask on contract pricing. I think in the release last night you were pretty positive on 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. Wanted to see if you could do the same now.
Corning Painter, CEO
Yeah. Josh, last year was a kind of unique event in that we had it all wrapped 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.
Josh Spector, Analyst
Okay. All right. Fair enough. I'll pivot to something else then. So 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?
Jeff Glajch, CFO
Well, so part of the impact in the quarter in terms of mix was that startup in China and some issues associated with the startup. And without that, that would've been above 400, for example.
Josh Spector, Analyst
Okay, understood. So that flowed through into price/mix and that's actually kind of the last piece I wanted to poke on is just, within the two 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?
Corning Painter, CEO
We observed that on a GP per ton basis, there was approximately $20 in the rubber segment and about $70 in the specialty segment.
Josh Spector, Analyst
Thanks. And that lasts into the fourth quarter, same impact or abate?
Corning Painter, CEO
There will be an impact in the fourth quarter. It shouldn't be as dramatic.
Operator, Operator
Thank you. Our next question comes from the line of Chris Kapsch with Loop Capital Markets. Please proceed with your question.
Chris Kapsch, Analyst
Hi. Good morning. 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 conversation. 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 three months ago. So any additional insights I think would be helpful for investors to try to assess the prospects for 2024?
Corning Painter, CEO
Sure. So a couple 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. It actually has a list of tire manufacturing, new investment, new projects, what they're going to mean in terms of KT, you could see that for North America, you could see it for Europe, you could 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, yeah, 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 2024, 2025, 2026, that kind of a 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 carbon black. For some tire companies going back a couple years, they've probably got about half their carbon black from Russia. That is a really big change. So those are all positive drivers. We are further along. But there are competitive and sensitivity about impacts we could have on the broader market and so forth. So I would just rather not say exactly what we have left or don't, 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 announced 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 gain where titles for return on capital. It's just difficult when the negotiations are still underway and that's where we are this year, not quite done.
Chris Kapsch, Analyst
Right. And just historically this is kind of a much more normal time to still be crossing T's dotting I's negotiating as you know, my history serves, but so …
Corning Painter, CEO
Yeah. For sure. Yeah.
Chris Kapsch, Analyst
Sure. The other question was about your perspective on the Specialty segment. There's some variability in the third quarter due to mix and the cogen drag, which I expect will continue into the fourth quarter and possibly early next year. Additionally, there are various influences across different end markets. Could you share your expectations regarding the trajectory, mix, and profitability of that segment as we transition from this year into next year? Thank you.
Corning Painter, CEO
Sure. Let’s start with power. The power market in Europe is more dynamic now than it has been in a long time, and I believe this trend will continue. We don’t specifically define the power price, so that may create some variability. From an operational standpoint, I don’t believe that super is a major factor. We price based on the value we provide to our customers, meaning that our product mix will always play a crucial role in our overall strategy. We are confident that we have maintained our position in premium and essential grades. At the lower end, we may need to adjust our volume between Russia, rubber, and specialty products based on appropriate pricing thresholds. However, we remain strong in those key grades. The performance of premium products may fluctuate, and there are times when we see significant volume in less premium products, which can affect the mix, making it difficult to predict. For next year, it’s vital for an operating company to be adaptable, and this will reflect the broader manufacturing landscape as we move forward. There are startup effects that Jeff mentioned, which have had some impact in the fourth quarter, but I think those will be resolved soon. Initiatives like Kappa 10 and new product certifications will help drive our gross profit per ton as we advance. In fact, if we exclude the startup effects this quarter, our numbers would have exceeded 700, which is quite impressive.
Chris Kapsch, Analyst
Appreciate the color. Thanks.
Corning Painter, CEO
You're welcome, Chris.
Operator, Operator
Thank you. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.
Jon Tanwanteng, Analyst
Hi. Good morning, guys. Thank you for taking my questions. My first one is 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, CEO
Right. If we separate the rubber and specialty segments, I mentioned one report we reviewed. We may consider packaging and personal care. The reality is that certain areas are experiencing an upward trend while others are declining. Ultimately, there has been a shift in end consumer demand towards services and experiences, moving slightly away from manufactured goods. Initially, there was significant demand post-COVID, resulting in shortages across the board. Since then, people have built up inventory, and we are currently in a phase of working through that, especially as consumer preferences have shifted. It's challenging to determine how much of the current situation is due to inventory destocking versus genuine end customer demand, and that’s a reality we must accept. As for rubber demand, particularly related to tires, the situation is a bit clearer. We highlighted this in our presentation. It reflects a mixed environment, where metrics like passenger car gasoline consumption and miles driven continue to increase. Truck traffic, which reflects manufacturing and general commerce, has also seen some variation. Additionally, we’ve noticed that consumers have been postponing some purchases. However, purchases of light trucks and passenger cars increased slightly this quarter, which may indicate we are nearing the end of this trend, but we need more than one quarter to establish a clear pattern. Does that help, Jon?
Jon Tanwanteng, Analyst
It does. Thank you, Corning. 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, CEO
Yeah. No, I would just say that's in our expectation of the guidance that we provided, which is a fairly strong Q4 as you compare it to prior years.
Jon 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.
Jeff Glajch, CFO
Sure, Jon. There's not that much. It might be a little on the light side.
Jon Tanwanteng, Analyst
I'm sorry, what was that?
Jeff Glajch, CFO
There's not nothing really dramatically different. It might be a little on the light side on EPS.
Jon Tanwanteng, Analyst
Okay.
Jeff Glajch, CFO
Sometimes we have Q4 tax things that sometimes come in that I was concerned about. So decided to be a little cautious there because the Q4 tax things, of course, are cumulative for the year.
Corning Painter, CEO
Jon, are you still there? Did you have another question?
Jon Tanwanteng, Analyst
I'm sorry. I think I was on mute. I was saying thank you for that.
Corning Painter, CEO
Thank you, Jon.
Operator, Operator
Thank you. Our next question comes from Laurence Alexander with Jefferies. Please proceed with your question.
Kevin Estok, Analyst
Hi. Yeah. Good morning. This is Kevin Estok on for Laurence. Thank you for taking my questions. 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 I'm curious to get your thoughts around the puts and takes for next year.
Corning Painter, CEO
Well, so we'll do our guidance later, right, after we could report our fourth year and quarter results. And so that gives us a little more time to see how the economy term develops between now and then. It is 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 think about rubber, the economy can go wherever it's going to go. Yeah, there can be truck traffic that 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 Kappa 10 that are going into a new market that have high growth, I think that's something where we can place all that product 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 sort of thing. 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. Thank you. 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 shutdowns would be longer in Q4 than usual. I just wondering, is that still true?
Corning Painter, CEO
Yeah. Excellent question, Kevin. I appreciate that. Certainly for some have signaled that they may take a longer shutdown, others have not. Right? So this is somewhat customer-specific and I would say that that's really was a comment we made it before about rubber, but even in other specialty markets, I guess we find the difference between what one customer's experiencing and their game plan versus another is, is somewhat spiky and a little bit distinct right now. But that's in our guidance for the fourth quarter. And yeah, I do think we'll see some people really trying to draw down their inventory for the end of the year.
Kevin Estok, Analyst
Got it. Thank you very much.
Operator, Operator
Thank you. Our next question comes from a line of Jeff Zekauskas with JPMorgan. Please proceed with your question.
Jeff Zekauskas, Analyst
Thanks very much. If you exclude Huaibei from both the specialty and rubber black businesses, and I know volume exclusive of Huaibei decreased, but how much did it decrease? What would your volume numbers have been in the two businesses excluding the capacity addition?
Corning Painter, CEO
So your question, first of all, good morning, Jeff. You’re asking about our volume excluding Huaibei. I'm somewhat hesitant to provide specifics about one particular site that is still in startup. The volume impact there is larger in rubber compared to others, so both would have been more negatively affected. However, due to commercial sensitivity in China and the specific markets targeted by our specialties, I prefer not to disclose that level of detail for this quarter.
Jeff Zekauskas, Analyst
Okay. So let, let's try it a different way. What was your utilization rate in Huaibei?
Corning Painter, CEO
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.
Jeff Zekauskas, Analyst
And in the fourth quarter we should be at, I don't know, 90% utilization in Huaibei.
Corning Painter, CEO
We will have some adjustments to make during the startup phase, which will affect Huaibei. I believe the utilization will be below 90% in the fourth quarter, but otherwise, the loading there would be quite high.
Jeff Zekauskas, Analyst
And then lastly, can you just give us a feel for what the demand conditions are like in your two businesses in the United States and Europe? In other words, if you had to compare the US 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, CEO
First of all, Jeff, let me broaden the conversation to include China. I don't believe demand is particularly strong in any of those three markets at the moment. So, when considering how to balance the two in a somewhat lukewarm environment, I would say that rubber is slightly stronger in North America, possibly due to Europe facing more tire imports. Specialty seems quite weak in both areas. The situation can vary significantly depending on the specific segment, and those dynamics may change from quarter to quarter.
Jeff Zekauskas, Analyst
So in specialty, which is weaker, the United States or Europe.
Corning Painter, CEO
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. Specialty between the two, I would say they're both quite weak. Probably Europe is a little bit weaker than North America.
Jeff Zekauskas, Analyst
Okay. And lastly, your CapEx is 175 to 200. Like can you even get to 175 given your spending through the first nine months?
Corning Painter, CEO
Yeah, Jeff, good question. So it's considerably backend loaded and we've backed it off a bit just in timing or a lot of the timing is regarding to La Porte. So I think that we will see a number of large purchases left this quarter and that will get us there and some of the underspend, right, is going to shift over into next year.
Jeff Zekauskas, Analyst
All right. Thank you very much.
Operator, Operator
Thank you. Our next question comes from the line of Kyle Mowery with Grizzly Rock Capital. Please proceed with your question.
Kyle Mowery, Analyst
Good morning Corning, Jeff and Wendy. Two related questions for me within your conductives 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 La Porte, Texas? Because this is in addition, right? Just wanted to make sure it's not a shift, but rather a growth.
Corning Painter, CEO
Yeah. So we expect, let's say, in the three-to-five-year time period that this would contribute, let's say, $5 million, $10 million of EBITDA to us. It is 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 complimentary. Now, a lot of battery companies have a wide range of materials, so it all does help to make us a bit more relevant to these folks, but really see it as a separate marketplace.
Kyle Mowery, Analyst
Excellent. Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.
Jon Tanwanteng, Analyst
Hi, thank you. I would like to follow up on the CapEx. What amount is being pushed out into 2024? Also, could you provide a preview of your overall CapEx plan for next year, including what portion is for growth versus maintenance? That would be very helpful. Thank you.
Corning Painter, CEO
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 almost the vast majority of our growth capital really to be La Porte 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 adjustment depending upon how much pushes over from one year to the other. Does that get all of your questions, Jon?
Jon Tanwanteng, Analyst
Yeah. And the pushed-out piece wasn't EPA spending, was it? Or is it something else?
Corning Painter, CEO
No, no, no, no. It is mainly about when you place orders for big pieces of equipment that are going to go to La Porte.
Jon Tanwanteng, Analyst
Understood. Thank you. And then second, I think you gave a metric on rubber getting back up well above 400 per ton on a gross profit basis in Q4. Did you give something similar on specialty that I don't recall if you said so.
Corning Painter, CEO
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.
Jon Tanwanteng, Analyst
Okay. Do you have a directional expectation?
Corning Painter, CEO
Yeah, I think it is probably improving from where we are right now. Yeah.
Jon Tanwanteng, Analyst
Okay. Great. Thank you guys.
Jeff Glajch, CFO
Thanks, Jon.
Operator, Operator
Thank you. Our next question comes from the line of Chris Kapsch with Loop Capital markets. Please proceed with your question.
Chris Kapsch, Analyst
My follow-up question is more of a broader perspective. On slide three of your presentation, you mentioned being on track for the 2025 mid-cycle capacity of $500 million in EBITDA. I understand that reaching this goal won't be a straightforward process, given the fluctuations in business cycles and the ever-changing global environment. I'm curious about the various factors or strategies you would consider important for achieving this target. Specifically, how do you see elements like economic conditions, pricing strategies, or different recovery patterns in end markets and specialties playing a role? Could you elaborate on the path to reaching that threshold? Thank you.
Corning Painter, CEO
Thank you, Chris. Let's discuss a few key points. Regarding pricing, we view the pricing achieved in 2023 as our starting point. It's important to clarify that we believe this is a foundation for future growth. The market for rubber carbon black is tightening in North America, Europe, and even South America. This trend is evident with the expansion of tire capacity, which will allow us to exert pricing power. We need to adjust our prices to ensure we achieve returns on the investments we're making in air emissions, as it’s a fair expectation. Thus, we believe there is potential for us to build on our pricing strategy moving forward. In specialty products, while it can be challenging to predict monthly mix changes in the current fluctuating economy, we see favorable trends reflected in our performance numbers. Looking ahead, we are targeting earnings capacity reflective of a mid-cycle economy by 2025. However, we do not currently see ourselves in that economic state, particularly in the materials and chemicals sector. We anticipate some recovery in volume that should benefit us nicely as we pursue our growth investments, primarily the La Porte project. I do not anticipate the La Porte project will be fully operational by 2025, which means while we will have capacity, we won't achieve full EBITDA from it right away. As we've always indicated, there will be a qualification period for those products in the right markets, but the presence of that capacity in the U.S. will prove advantageous, especially with the development of several large-scale facilities. In terms of our progress, La Porte is on track and we expect it to perform well. Pricing and mix are already established, although competitive dynamics create some complexities. Overall, I view our environment positively. Additionally, the Huaibei facility is operational and shipping product, which will further support our objectives. We are aligned to meet our targets. Whether the economy will reach a mid-cycle state by 2025 remains uncertain, but we will be prepared for whatever comes. This readiness is crucial.
Jeff Glajch, CFO
And I think, Chris, just to layer around what Corning said early on in his response, clearly a big lever there is, is volume. And the volume is a function of where the economy, where the market demand is at the time.
Chris Kapsch, Analyst
Fair enough.
Corning Painter, CEO
Yeah. I would say the 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.
Chris Kapsch, Analyst
Thank you for the color.
Corning Painter, CEO
All right. Thank you, Chris.
Jeff Glajch, CFO
Thanks Chris.
Operator, Operator
Thank you. 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, CEO
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, Operator
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.