David Stasse - VP, Treasury and IR Chris Pappas - President and CEO Barry Niziolek - EVP and CFO.

David Begleiter - Deutsche Bank Laurence Alexander - Jefferies Dylan Campbell - Goldman Sachs Vincent Stephen Andrews - Morgan Stanley Hassan Ahmed - Alembic Global Roger Spitz - Bank of America Merrill Lynch Matthew Blair - Tudor, Pickering, Holt &Co. Eric Petrie - Citigroup.

Good morning, ladies and gentlemen and welcome to the Trinseo Second Quarter 2017 Financial Results Conference Call. Turning to slide two, we welcome the Trinseo management team.

Chris Pappas, President and CEO; Barry Niziolek, Executive Vice President and CFO; and David Stasse, Vice President of Treasury and Corporate Finance, who'll be conducting the call. I will now hand the call over to David Stasse. .

Thank you, Megan, and good morning, everyone. At this time, all participants are in a listen-only mode. After our remarks, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] The slide presentation for today's call has been posted on the company's Investor Relations website in the webcast viewer and with the financial results press release by means of a Form 8-K filing with the Securities and Exchange Commission.

A replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the conference call. The replay will be available until August 3rd, 2018. Our disclosure rules and cautionary note on forward-looking statements are noted on slide two.

During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described, or implied in these statements.

Factors that could cause actual results to differ include, but are not limited to, factors set forth in our Annual Report on Form 10-K under the Item 1A, Risk Factors. Today's presentation includes certain non-GAAP measurements. Reconciliation of these measurements is provided in our earnings release and in the appendix of this presentation.

I will now hand the call over to Chris Pappas..

Thank you, Dave. Good morning, everyone, and thank you for joining us. Please turn to slide three, where I'd like to start by going over five key points. First, we continue to see strong business fundamentals across our portfolio.

We had a very strong second quarter with net income of $60 million and adjusted EBITDA of $126 million, which included $23 million of pretax, unfavorable net timing impacts. Excluding these impacts, we were near the midpoint of our $145 million to $155 million guidance range for the quarter, which assumed no timing impacts.

Second, our Performance Materials growth initiatives continue to be on track to deliver at least $100 million of additional adjusted EBITDA from 2016 to 2019.

We continue to see meaningful improvement in our Latex Binders business, with favorable market conditions and cost savings, and our Synthetic Rubber and Performance Plastics growth investments are progressing as expected.

During the second quarter, we were very proud to announce the acquisition of API Plastics, which aligns nicely with our growth strategy. More on this later. Third, we remain committed to returning cash to shareholders. We recently announced a 20% dividend increase, as well as a 2 million share repurchase authorization.

Additionally, in the second quarter, we spent about $30 million to repurchase 467,000 shares. Fourth, we intend to launch a refinancing of our existing bonds and term loans over the next two weeks that we expect to result in a reduction in our interest expense.

And lastly, we are updating our full year 2017 net income guidance to between $294 million and $302 million and adjusted EBITDA guidance to a range of $550 million to $560 million. This guidance assumes $30 million of unfavorable timing impact.

Recall that our prior adjusted EBITDA guidance of $600 million to $620 million included $24 million of positive timing impacts. Exclusive of these timing impacts, the midpoint of our prior guidance was $586 million, which is fundamentally the same as our updated guidance. Now, please turn to slide four for more on our acquisition of API Plastics.

In June, we announced the acquisition of API Plastics, a sophisticated polymer solutions provider with a strong position in soft touch polymers, which complement Trinseo's strength in rigid polymers.

By leveraging API's advanced manufacturing operations, excellent management, deep technical expertise, and strong customer relationships, we will further strengthen our Performance Plastics businesses and create growth synergies with customers in all global regions.

API Plastics products are distinct from Trinseo's and are complementarity, but have a significant market overlap. Key markets for their products include automotive, construction, medical, high-end footwear, appliances, consumer goods, and packaging.

The potential for combining the offering of rigid and soft polymers as well as using our global presence to bring API Plastics' products into new geographies means that this portfolio of Performance Plastics will be an engine of growth for Trinseo.

This is Trinseo's first acquisition, and it is directly aligned with our strategy to grow our Performance Materials division. At our Investor Day in November, we committed to $100 million of EBITDA growth in Performance Materials from 2016 to 2019.

And at that time, we said that about $75 million of that was from projects that had already been identified. The API acquisition significantly contributes towards the remaining $25 million. Now please turn to slide five. In the past, we've highlighted the impact of raw material timing and price lag can have in our results.

These impacts are result of price movements and our major raw materials, primarily styrene, benzene, and butadiene. Over the past three quarters, we have experienced relatively large timing impacts due to large fluctuations in these raw material prices.

We saw a rapid increase in the price of benzene, styrene, and butadiene in the fourth quarter of 2016 through the first quarter of 2017, followed by a rapid decline in Q2, which we believe will continue through the third quarter. Price swings of this magnitude are relatively rare.

In fact, we have only seen price swings of this amount once in the past six years.

Now, we've talked in the past about how these price changes can impact our raw material cost flowing through the cost of goods sold versus the current timing, and we've also said that a meaningful part of our Performance Materials revenue is on a contractual basis with a price lag on the raw material pass-through.

The net impact of these two dynamics has been large over the last three quarters and we expect it to be unfavorable by about $30 million in the third quarter. Our current projection for fourth quarter timing impacts is minimal, as we expect a flat Feedstock environment.

Now, in order to help you understand the impact of these movements, we are enhancing our disclosure in our earnings presentation and calls. Starting this quarter, we are providing the net timing impact by reporting segment, which you can see in the appendix.

We believe this will give you a better understanding of the impact of raw material volatility on each of our reporting segments. Now please turn to slide six, where I would like to discuss some highlights from the second quarter.

I'm pleased to report the second quarter net income of $60 million, adjusted earnings per share of $1.39, and adjusted EBITDA of $126 million. Timing impacts in the quarter were an unfavorable $23 million.

Overall, the Performance Materials segments had a very solid quarter with an aggregate $87 million of adjusted EBITDA, which included $5 million of unfavorable net timing impact. In Latex Binders, we continue to see stronger results driven by our diversified chemistries and cost actions.

Synthetic Rubber also had a good quarter with SSBR sales volume near the record total from the first quarter. We continue to see strong demand for these products, particularly for our differentiated SSBR rates.

In June, we celebrated 80 years of Synthetic Rubber production at our facility in Schkopau, Germany, where we have a team with a proven long-standing commitment and dedication to customers with close integration of operations, maintenance, technical service, and development.

The upcoming SSBR pilot plant, which begins operations in the fourth quarter of 2017, will reduce the time between development and commercialization of our high value rubber products. It allows Trinseo to be more efficient and flexible in developing high-quality products and supports Trinseo's need to meet increasing customer demands.

We're also on track for the first phase of new capacity related to the 50 kiloton SSBR expansion, which is expected to come online in the first quarter of 2018. Performance Plastics fundamentals remained strong. Sales volume has one of the highest quarters ever when you exclude the impact of our Latin America divestiture, despite generally weaker U.S.

auto production. In the U.S., sales of SUVs and light trucks continued to be stronger than the rest of the market, and this portion of the market makes up about 70% of our sales in the region.

In consumer essential markets, we continue to see a higher sales level in Europe, matching last quarter's record level, as work over the past couple of years has resulted in customer wins in areas such as smart meters and medical devices.

In aggregate, the Basic Plastics and Feedstocks segments had an adjusted EBITDA of $61 million in the quarter, including an unfavorable net timing impact of $17 million. As we forecasted on our last earnings call, styrene margins bottomed in May after an inventory correction in China.

Margins increased in June and increased further in July as the market has returned to a more balanced state after the volatility of the last eight months. Now please turn to slide seven, where I'd like to summarize the first half results.

From this table, you can see that overall for the first half, the net timing impact was about zero, with offsetting impacts of greater than $20 million in each quarter. Please note two items. First, the primary variance between the first and second quarter performance was these timing impacts.

Second, you can see the very strong performance in the first half of the year with essentially no net timing impacts. Now, I'd like to turn the call over to Barry, who will discuss the financial details of our second quarter performance..

Thanks Chris, and good morning, everyone. Please turn to slide eight. Second quarter net income was $60 million and adjusted EBITDA was $126 million. This included a $23 million pretax impact from unfavorable net timing in the quarter. On our last earnings call, we guided to a net zero timing impact for the second quarter.

The variance to this was driven by key raw material cost climbing faster than expected, particularly butadiene and styrene. Compared to prior year, almost 75% of the drop in the second quarter adjusted EBITDA is attributed to timing and to styrene margins. Now turning to slide nine, let's go through our segment results.

Latex Binders net sales of $292 million for the quarter increased 25% versus prior year, primarily driven by the effects of higher raw material costs. Adjusted EBITDA of $36 million was $15 million above prior year, driven by higher margins and $5 million favorable timing compared to prior year.

Higher margins were driven by several factors, including the diversification of our chemistries and markets, higher operating rates, as well as cost reductions. In addition, as mentioned on our previous calls, our contractual arrangements can result in higher margins in times of elevated raw material prices. In the second quarter, we saw the benefit.

However, this benefit can impact us on the negative in times of declining raw material prices. Let's turn to slide 10, Synthetic Rubber net sales of $174 million for the quarter increased 56% versus prior year, driven by the pass-through of higher raw material cost and higher sales volume.

Higher volume and improved product mix increased adjusted EBITDA versus prior year. However, those improvements were more than offset by $7 million of unfavorable net timing impacts in comparison to the prior year.

Now turning to slide 11, Performance Plastics net sales of $190 million for the quarter was 3% above prior year, driven by the pass-through of higher raw material costs. Adjusted EBITDA of $23 million was $15 million below prior year due to increasing raw material cost through the quarter.

Performance Plastics has a longer price lag, the longest of our businesses, so margins can't be impacted in quarters when raw material prices increase.

In addition, the second quarter also saw a margin compression as polycarbonate and other raw material prices increased and we're unable to pass all of that through in our pricing, which had a negative impact on margins. We are focused on raising prices in the third quarter to reverse this margin compression.

Moving to slide 12, Basic Plastics net sales of $382 million for the quarter was 5% above prior year, driven by the pass-through of higher raw material costs. Adjusted EBITDA of $32 million was $11 million below prior year, driven primarily by timing impacts, which was an unfavorable $6 million in 2017 versus a positive $2 million in 2016.

Polystyrene margins were lower in comparison to a very strong prior year. Polycarbonate remains sold out in a strong pricing environment. Turning to slide 13, Feedstocks adjusted EBITDA of negative $1 million was impacted by an unfavorable $11 million of timing impacts in the quarter.

Exclusive of this, the result was slightly below guidance from lower than expected styrene margins in June. Americas Styrenics adjusted EBITDA of $30 million for the quarter was $8 million below prior year, driven by lower styrene margins from styrene purchases related to the first quarter outage.

We received a $38 million dividend from Americas Styrenics during the quarter. Please turn to slide 14, year-to-date cash from operations was $37 million and free cash flow was negative $38 million, which included more than $200 million in higher working capital due to increasing raw material prices.

We expect this working capital bill to reverse in the second half of the year due to falling prices. For the full year, we expect cash from operations of about $400 million and free cash flow of about $240 million. Now, I'll turn the call back over to Chris, who will discuss performance expectations for the third quarter and full year 2017..

Thanks Barry. Please turn to slide 15 for a discussion on styrene monomer. As we forecasted on our first quarter call, Europe styrene margin over raw materials increased in June due to increasing styrene derivative demand and decreasing inventory levels in China.

In fact, the China styrene inventory levels are currently about 70% below peak levels and about 50% of normal levels. These conditions, along with some industry supply issues, resulted in a second consecutive monthly margin increase in July and we expect another increase in August due to the additional supply issues.

Our outlook for September assumes the supply issues will be resolved and margins will moderate to levels that are indicative of the seasonally lower level of planned turnarounds. Now, please turn to slide 16 for a discussion on our third quarter outlook. The business fundamentals for Performance Materials division continued to look very good.

For Latex Binders, we expect adjusted EBITDA of about $30 million. This reflects a continuation of strong market conditions as well as the cost actions we spoke about earlier. We expect Synthetic Rubber adjusted EBITDA of about negative $5 million.

While rubber fundamental performance remains strong, the third quarter is expected to be impacted by an estimated $30 million of negative net timing impact. This is driven by the steep decline in butadiene prices that we discussed earlier.

In addition, the third and fourth quarters should each be negatively impacted by about $5 million from project costs related to our SSBR expansion. These growth-related impacts are consistent with our guidance when we announced the projects late last year. In Performance Plastics, we expected adjusted EBITDA of about $30 million.

Volume should remain healthy and adjusted EBITDA should improve sequentially benefiting from cost actions and margin recovery. In our Basic Plastics and Feedstocks segments, we expect an aggregate third quarter adjusted EBITDA of about $80 million.

Excluding the impacts of timing, this is an improvement from the second quarter due to higher styrene margins in Europe and Asia as well as better performance in Americas Styrenics. Basic Plastics performance should be sequentially lower after the second quarter restocking in polystyrene as well as seasonally lower volumes.

In total for Trinseo, we expect to generate between $50 million and $58 million of net income and $110 million to $120 million of adjusted EBITDA in the third quarter. This is inclusive of a pretax $30 million unfavorable net timing impact. We are guiding the third quarter EPS and adjusted EPS to $1.10 to $1.28 per share.

Turning to slide 17, we are updating our full year 2017 guidance to between $294 million and $302 million of net income and $550 million and $560 million of adjusted EBITDA.

This guidance is essentially the same as we provided for the full year 2017 on our first quarter earnings call, except for the $55 million of additional unfavorable net timing impacts. In aggregate, in the Performance Materials segment, we expect $330 million of adjusted EBITDA, which includes an unfavorable net timing impact of $35 million.

This outlook is also in line with prior expectations, excluding the net timing impact. Our full year guidance for Latex Binders is $125 million, unchanged from prior guidance.

In Synthetic Rubber, we expect adjusted EBITDA of $90 million for the year and this includes $20 million of unfavorable net timing as well as $10 million of growth-related impacts in the second half of the year. Overall for the year, we expect record sales volume and continued steady margins in rubber, so a very good year for this segment.

Our Performance Plastics guidance for the year is $115 million of adjusted EBITDA and includes $10 million of unfavorable net timing as well as lower margins due to higher raw material costs. Now moving to the Basic Plastics and Feedstocks segments.

In aggregate, we're expecting $320 million of adjusted EBITDA for the year, which includes a $5 million favorable net timing impact. Excluding this impact, our outlook for the total of these segments is in line with our prior expectations.

Moving to slide 18, here you can see a summary of our first half 2017 results as well as our second half expectation. There is a sequential decline in profitability, about half of which is driven by net timing impact.

Outside of those impacts, the decrease is driven by several factors, including onetime impacts from our rubber growth-related projects as well as lower Latex Binders and styrene margins, and seasonally lower volumes. We expect improvement in Americas Styrenics, with no expected outage effects in the second half of the year.

Now, please turn to slide 19 and from this bridge, you can see that on a consolidated basis, net timing is the primary driver of our lower guidance for the year. Business fundamentals remain strong and I'd like to reiterate the improved mix in our profitability with growth in Performance Materials this year and more expected in 2018.

Before I turn the call over to questions, I want to make sure a few points are clear. One, our business has performed in line with expectations when excluding unfavorable timing impact. Two, in general, we see continued strong business conditions for the remainder of the year.

And as usual, our guidance does not include any upside from unplanned styrene outages. Third, we expect to be very cash generative in 2017. As I said earlier, the net working capital outflows in the first half of the year should reverse in the second half leading to a third consecutive year of well over $200 million of free cash flow.

The refinancing we planned to launch in the next few weeks should result in interest savings that will add to our cash generation in the future. Finally, we continue to make very good progress on the commitments we've previously outlined.

These include Performance Materials growth, including our recently completed acquisition of API Plastics as well as balanced cash deployment and return to shareholders, including our 20% dividend increase and share repurchases.

We remain focused on continuing to deliver on our short and long-term commitments, including Performance Materials growth, sustainable Basic Plastics and Feedstocks results, and balanced cash deployment. And now Megan, you may open the phone line for questions..

[Operator Instructions] Our first question comes from the line of David Begleiter from Deutsche Bank. Your line is open..

Thank you. Good morning. Chris, very strong styrene margins in July and August.

Can you give us your view of this -- of the styrene cycle over the next 15 to 18 months, new supply that might come on-stream as well as the structural supply drivers that could maintain these margins at these levels?.

Sure. Thanks David. Before I get to that, I wanted to just make a couple of comments for all of you that are generally covered in the prepared remarks we've made. But just to go back in time a little bit. I know there is a lot of kind of consternation around this topic of timing and effects and so on.

But I just want to go back to memory lane a little bit with you. On November 2nd, we gave guidance for this company for 2017 of $580 million of EBITDA with no timing assumed. We reiterated that on November 11th. On February 23rd, we affirmed that guidance at $580 million with no timing.

On our May 3rd call, we increased our guidance to a $610 million midpoint, but we advised a positive $24 million net timing effect. So, in essence, we were still at the $585 million number at that point. Today, we guided to $555 million through the year, but $30 million of negative net timing, again, essentially the $585 million.

So, all the way back to November 2nd, including November 11th, February 23rd, May 3rd, and August 3rd, we have consistently said that this company was going to be about $585 million of EBITDA in 2017 and that's exactly where we are today.

Now, a number of you wonder why timing can be a big issue for our company, like it was in this quarter and in the first quarter.

And the reason for that is, and we've talked about this is, because we have very large volumes of styrene, butadiene and benzene moving through our cost of goods, and at times when those three materials are moving in the same direction in a rapid fashion, down or up, that does create a rather large timing effect for the company.

You saw that in the first quarter with a positive $24 million effect, and now you're seeing it in the second quarter with a negative $23 million effect. And those two have washed each other out, of course, in six months. Now, these kinds of steep declines or gains in those raw materials really haven't happened that often in our company.

In fact, the last time we saw something this dramatic was, really, back in 2011 and 2012. The other question is, you're all wondering, when are we going to get this timing back? That's been a common theme that we've heard post our discussions yesterday. I'd like to direct you to slide 22 in the deck that you have. It's an appendix slide.

And this is instructive, because we've often said that over time, these timing effects do in fact equalize out. And on this slide, you have Q1 of 2015 through Q2 of 2017, and you can see that the net timing effect on the company over that period of time is essentially zero.

And there are, of course, times in the quarter where -- because what of I've mentioned earlier, the timing effects can have an impact on the quarter. So, I'd like you to reflect on that chart a little bit, as you think about when is timing coming back. It depends on the Feedstocks. Let's see how the balance of the year goes.

If butadiene and other feedstocks move up, then the $30 million negative that we currently have in our full year estimate will be different. It will be less. If they go down, it could be slightly more. But over long periods of time, they tend to equalize out. Quick comment on cash flow. We talked about strong cash flow coming by the end of the year.

We talked about the reversal of working capital, which you would expect. We can report that in July, we've already seen about a $50 million positive reversal of cash flow -- working capital, I should say, effects in the company. So, our view of cash flow remains very strong, as outlined in the call.

So, frankly, we think you ought to continue to look at our adjusted EBITDA exclusive of raw material impacts. We know it can, at times, create some noise in any given quarter, but we think that's the right fundamental basis.

And then finally, if you want to think about -- I know some of you are wondering, what's your baseline profitability at today's Feedstock levels? That answer is about $585 million.

So, we think the baseline for the company that you should think about as you move forward into your 2018 thought process is $518 million -- sorry, $585 million of EBITDA at Feedstocks levels where we have them, excluding the improvements we would expect in 2018. And of course, we'll be getting to that when we give you our guidance for 2018.

But you already know we have $100 million of Performance Materials lined up for 2019. We have various projects, et cetera, et cetera. Now David, to your point, I think it would be helpful to think about this in relationship to that $585 million. Clearly, right now, the margins in styrene have moved up in July, August.

There are some unplanned outages, again. They appear to be short lived, we'll have to see. But the thesis in styrene that we've been on for many years now continues to play out. About 1.8% global growth in demand, limited capacity, old asset base.

That leads to, we think, a relatively sustainable set of styrene margins and the opportunity for rising styrene margins when we have these unplanned outages.

That has been our thesis, that has been occurring now for several years, and we believe it will continue to occur over the next several years, because David, there is no real new capacity coming, in our view, until about 2020. If you look at next year and 2018, there is no styrene capacity coming to the market.

So, 15, 18 months, same dynamic, is the fundamental answer, David, to your question..

Very good. And Chris just on rubber.

I know it's early to look at 2018, but any early look on how the walk might take us from 2017 to 2018, given the expansion and the reduced cost we're incurring this year?.

Well, this year, we've guided Rubber, as you know, to $90 million of adjusted EBITDA, but that includes $20 million of timing effects, at least for the moment, and $10 million of cost effects, which is what you're referring to. And so on that basis, how much can we improve that in 2018.

We have the new capacity starting first in the year, the new rubber capacity SSBR. We're continually sold out in SSBR. The demand for our products is strong. We're entering commercial agreements now for that new capacity. So, it's going to be part of that $100 million, $16 million to $19 million change.

A little bit early to put an exact number on it, Dave, but certainly, it's going to be contributing to a growth in rubber in 2018 versus 2017..

Thank you very much..

Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open..

Good morning.

I guess, can you just flush out that discussion just a little bit more in terms of how do we -- how should we think about the timing effects rippling through to free cash flow? So if you think, just as a general rule of thumb, is the timing effects on a six-month basis, basically a wash, because it's offset by accounts -- by working capital? Or is there some other kind of rule of thumb, we can be thinking about?.

I think that's about right, Laurence. And I'll turn this over to Barry for a second here. But the fundamental thing you're driving at is the timing effects tend to be opposite the working capital effects. And it's not a one for one, and I don't want you to think that but, of course, directionally, that's the case.

So, why did we have a big working capital draw in the first six months of the year? The answer is, because raw materials were rising dramatically and that's, of course, obviously, puts a draw on working capital.

Why is working capital being released into the second half of the year, including the $50 million we've already seen in July? It's because as those Feedstocks come down, we, of course, release that working capital. And then, you get the reverse affect, of course, on the timing.

So, they're related symmetrically in that sense, but not exactly in quantum. And Barry I don't know if you want to add to that, but that's fundamentally the way it works, I think..

The only point I would add is to reiterate something Chris has already said that in July. We're already seeing about $50 million of that flow back into our free cash flow..

And then just secondly, is there -- are there -- what are the constraints on how quickly you can purchase shares given your authorization?.

We have a new authorization for the 2 million shares. We have, from our Board, the ability to act under certain parameters. And of course, in the second quarter, you can see what we were able to do under those parameters. And as we move forward in the third and the fourth quarter, we'll report that on a quarterly basis, Laurence..

And this is Barry, again. I think, as we mentioned on Investor Day, we're going to take a more balanced approach as we go forward.

If you take a look at our reinvestment and organic investments and our acquisition relative to returning cash to shareholders, as we went through year-to-date in 2017, it's pretty well-balanced, consistent to what we said back in November..

Thank you..

Your next question comes from the line of Robert Koort with Goldman Sachs. Your line is open..

This is Dylan Campbell on for Bob. A quick question, given that you also buy butadiene in Latex, do you now face same pressures there for timing? I guess we're just kind of looking at the fact that you didn't change guidance for that segment, as similarly -- in a similar fashion to what you did for Synthetic Rubber.

And as a follow-up to that, if it's related to more favorable timing for Synthetic Rubber versus Latex, why can't you do the same in that Rubber segment? Thank you..

This is Barry. Recall, there's two components of our timing. One is the raw material component, and then there's the price lag component. When you look at Latex, you're exactly right; we do have that same impact from butadiene, however, we also have a different level of inventory. So, it's pretty well matched there, which is about 30 days of inventory.

So, you won't see the impact as amplified as you would in Synthetic Rubber..

There's also a chemical composition thing, Dylan that you should know about. Rubber on average for us is 70%, 75% butadiene in composition. Latex is less than that, its styrene, butadiene, latex. So, styrene tends to be the larger component.

So, there's also kind of a volumetric difference, if you will, in addition to this inventory time -- amount of inventory and so on that Barry mentioned. And that's what makes Latex less vulnerable to strictly butadiene movements..

All right. Thank you..

Your next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open..

Thanks and good morning everyone. Just two questions.

One, with your customers, as we're seeing all this raw materials volatility -- and have you seen any change in their purchasing patterns? And on top of that, maybe on the auto side of things, are you seeing any desire from your customers to hold less inventory?.

Yes, Vince hi. We do. So, the customers across, I would say, all of our products, try to manage to the degree that they can and it varies. It varies. But they try to manage their purchases against their view of the future, especially when things are quite steep.

So, in the first quarter, we talked about how with styrene running up so steeply, the polystyrene customers were holding back on purchases, waiting for what they believe to be the top of the styrene market. And then, they would start to buy more heavily, which, of course, they did, when the price of styrene started to move down into May.

And in the other businesses, I use Synthetic Rubber. Although, it's -- that's significant there, our tire customers, because their tire customers try and buy less when they see raw materials spiking. So, yes, we do see it. But I would say, it's most pronounced in polystyrene, polycarbonate, and less pronounced in the other businesses.

And that has to do with supply chain dynamics, the way the supply chains are configured. And frankly, the amount of effect of our product in the finished product. You can imagine in a tire, our SSBR rubber is an important component, but against the final price of the tire, it's not that significant.

So, the effect of gaming against rubber is not the high. But in polystyrene, with the polystyrene palette might be 50%, 60% of the cost of the product, the ability or the customer's view of trying to get timing in place has a bigger impact.

Does that make sense?.

Yes. No, that's great. Thanks.

And then just, maybe finally on the working capital reversal, is there sort of a rough area where, say, butadiene needs to get to by the end of the year to get that reversal? Just sort of -- can you ballpark it for us?.

No. Right now, the reversal is going to happen, with butadiene where it is. Butadiene doesn't have -- working capital. If butadiene stays where it is, our working capital forecast is, is as we suggested. Outside of whatever we do with inventory and things like that, Vince. If butadiene goes up, then our -- then some of that timing will be reversed..

Okay, great. That's perfect. I appreciate it. Thanks very much..

Your next question comes from the line of Hassan Ahmed with Alembic Global. Your line is open..

Good morning Chris..

Hey Hassan..

Chris wanted to sort of revisit the question asked by Dave Begleiter. Just around styrene supply demand fundamentals and the like. Obviously, we've seen some sort of interesting moves through the course of this year. Shell, obviously, stepping away from the SADAF joint venture.

For the longest time we had heard that they would consider for some sort of unit out in Saudi Arabia. And now then sort of walk away from that JV obviously implies that's not going to be the case. And then, Lyondell coming out and saying that they'd set up a PO/TBA facility.

From the sounds of it, more and more people are sort of not moving in the PO/SM direction.

So, with that sort of -- with those sort of movements going on through the course of this year, over the last couple of years, what's your updated view about the next couple of years in terms of styrene monomers, sort of, supply/demand fundamentals and how they may, sort of, eventually impact polystyrene as well?.

Well, you're exactly right. It's pretty clear that the PO/SM investment curve is not what it used to be. We've been talking about that also for a number of years for the reasons stated. Other technologies are available. Profitability of PO and its derivatives is been driven by those market dynamics, not coupled with styrene.

So, we've seen very little interest in PO/SM, only the one facility in China that Shell was doing. That's roughly 20-20, in our view, startup. So, we're constructive, again, on styrene for the reasons I've talked about limited capacity. We don't see PO/SM as a threat. In fact, we know what the PO/SM builds are like between now and 2021.

It's the one we've talked about. There is limited traditional styrene coming. Remember, the margins in styrene today look better than they have in 2012, 2013, but they're not that great. And so it's hard to see how new investments can get floated even with today's margins in styrene, because they're just not that great on a return on capital basis.

They just happen to be better than things were in the past, which, of course, were not very pleasant. So, going forward, we don't expect new investments of any significant amount. The investment curve that's in place is limited and we would expect an upwardly sloping operating rate. Again with a bad asset base, outages happen.

We're almost going to have to talk about outages as normal, because I don't -- can't think of a year in the last three that we haven't had a whole number of outages and it's kind of an expected thing for this asset base..

Fair enough. Very helpful. Now, as a follow-up, coming back to the timing impact and the like. We've, obviously, seen these steep declines in the butadiene prices, benzene prices and the like. And you're, obviously, guiding to a residual sort of timing impact in Q3.

But as you've given your guidance for the back half of the year, what sort of -- obviously, most of these rollers are highly correlated to crude oil.

Embedded in that guidance, what sort of a crude oil pricing environment are you sort of forecasting?.

To the extent that they're related, so remember the third quarter is the -- in the forward-look we've given you, the third quarter is the only quarter right now that has timing effects. It has the timing effect we described.

By definition, our fourth quarter has essentially no timing effect in the guidance we've given you, which, working back to your question, would suggest that the Feedstock curve that we forecasted into the fourth quarter is relatively flat, which, if you believe those are tied to oil, would suggest that oil's going to stay in that period in the $45 to $52 or something dollar range, $42, $52, whatever bracket you want to pick.

But clearly, we're not suggesting in that Feedstock forecast that there is some big run-up in the oil price. Now, I'll remind you that oil and our Feedstocks can be somewhat correlated, naphtha, as an example, which leads to a butadiene and other things.

But as we've shown you guys before, there are many, many times when the Feedstocks move off of the oil curve for their own reasons. Outages in butadiene take butadiene up dramatically, independent of the oil market. We've seen that many times..

Absolutely. Certainly early this year..

Yes. But that's the way it's built, Hassan, is flat. Feedstocks, oil in that range, and then we'll see how it develops, of course, month-by-month going forward..

Very helpful. Thanks so much Chris..

Our next question comes from the line of Roger Spitz with Bank of America Merrill Lynch. Your line is open..

Thank you and good morning. Regarding the bond and bank refinancing you spoke about in the introductory remarks.

Do you intend to fully refinance both of your bond issues in full? And would you be bringing a new bond issue as well as presumably a new term loan issue to market?.

In the coming weeks, it's going to get clear. At this point, we can't really say anything about that. But it's going to get clearer as we come forward in the coming weeks..

I don't know if you've heard that, Roger. We'll learn more over the last couple of weeks when it becomes a reality..

I did. Thank you very much..

Your next question comes from the line of Matthew Blair with Tudor, Pickering, and Holt. Your line is open..

Hey, good morning guys. Chris, I was wondering if you might be willing to speculate on the net impact of the Pernis refinery outage to Trinseo, because there's a lot of moving parts, right.

I think the ethylene and benzene supply would probably be reduced, but then there's also some reports that styrene production from one of your competitors has shut down, and we're seeing styrene spot prices move up as well.

So, how do you think about the total net impact of that outage on your company?.

Well, I think, you described it pretty well, Matthew. The impact is that facility and its outage is connected to the world of PO/SM styrene facility. And in fact, that facility is running at reduced rates. There are other styrene problems going on, both in Asia and in Europe at the moment.

And if that facility stays in Pernis stays down for a long period of time, it'll have a continued effect on the styrene market. That's part of what's been driving the margins you see in styrene in our gray bars in the immediate future. That's one of the components. There are a couple more. There's a plant down in China.

There's another outage or reduced rates in Europe. So, there are a couple of things going on right now that are driving these styrene margins. They have not announced, to my knowledge, a timeline. Several weeks, I think, is the best data anybody has, but we'll have to see how long it takes..

Yes, that's what we're thinking too.

And then, Barry, I'm not sure if I missed this, but I think previously on the refinancing, you were targeting savings of $20 million to $25 million, is that still a good number to use?.

I think at this point, it's as good as anybody. Again, I just want to reiterate, as we come forward here in the coming weeks, that's going to get a lot more clarity..

Got it. Thank you..

Your next question comes from the line of Frank Mitsch with Wells Fargo. Your line is open..

This is [Indiscernible] on for Frank. I guess, to switch gears a bit, could you guys update us on how we should be thinking of the cadence through 2019 related to the $100 million growth initiative within Performance Materials? Thanks..

Well, at our Investor Day, we gave a sense of that. We talked about -- roughly 40% of it would be in place in 2018, and the balance in 2019. And that's, I think, the best data that we have today. We'll see more about that, of course, when we give 2018 guidance. But that's what we thought then. And the projects are on time essentially.

And so that's the best data that we've got at this point. That's the guidance that we gave in Investor Day and we'll give you more as we move forward. But, look, we've been pretty clear. The projects are on time, the rubber train is coming up. We've seen some improvement in 2017 already in Performance Materials, as you know.

Some of that is going to flow into 2018. We've made an acquisition, of course, with API Plastics. That's part of the contribution to the $100 million. So, we're tracking, I think, pretty well to the end goal, and reasonably well to the split that we gave back in Investor Day..

Okay. Thank you..

Our final question comes from the line of P.J. Juvekar with Citi. Your line is open..

Hi, good morning Chris. It's Eric Petrie on for P.J..

Hey Eric..

Could you talk a little bit about the cost curves in styrene, and how it's changed specifically to Chinese competitiveness with lower ethylene and benzene costs?.

The cost curve in styrene is relatively flat with the exception of plants that are cited with much lower ethylene costs than the rest of the world and that means U.S. Gulf Coast or Middle East. And outside of that, there's really not a lot of differentiation except for scale and age. But the biggest driver, otherwise, would be that.

Now remember, ethylene is only 20% of the molecule of styrene. It's really 80% benzene. So, you don't have a benzene cost advantage, you may or may not have an ethylene cost advantage. In China, you have two types of styrene capacity. You have capacity that's integrated to ethylene crackers, either from refineries or otherwise.

And in that scenario, if there's a low cost ethylene in China, which I'm not convinced there is long-term, but if there is, they would have a slight advantage compared to ethylene, say in Europe or other parts of Asia.

On the other hand, most of the capacity in China for styrene is not of that type, it's mostly the unintegrated and that's the capacity that struggles to run, does not have ethylene on-site or benzene, is always at risk to other uses of that ethylene and that's the capacity that has been held back, if you will, as an operating rate in China..

Okay. Thanks.

And with the completion of the acquisition of API Plastics, what's the pipeline like? And are you planning to do another bolt-on in the next couple of years? And what kind of multiples are you looking at?.

We just closed on API. We're very pleased with that acquisition. It gives us lots of advantages, as talked about on the call, in terms of product technology that we can take globally into the markets we're in and into some new markets. So, really excited about it. Doing acquisitions in that space is really difficult. We have a pipeline.

We've had a pipeline. We've been working on that pipeline for a year and a half, and so far we've been able to execute one. So, it's a difficult space to execute in, because these tend to be family-owned or smaller companies and it just takes a lot of time and effort to bring them into the fold. So, we'll keep working on it.

Hard to predict whether we'll have more or not. From a multiple point of view, we have said continuously that if we buy something in that space, like API, then we would expect to pay a multiple that's consistent with the multiple of our Performance Plastics business, if that business were in a public market environment.

And those multiples for those kinds of businesses in a public market environment are in the nine times range, and you'd expect to have to pay that if you're going to buy a business like that to bolt-on to Performance Plastics, and that's how we think about the multiple there..

Thank you..

There are no further questions at this time. I'll turn the call back to presenters for closing remarks. And this concludes today's conference call. You may now disconnect..