AdvanSix Inc (ASIX) 2020 Q3 法說會逐字稿

Good morning, and welcome to the AdvanSix Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Adam Kressel, Director of Investor Relations. Please go ahead.

Thank you, Danielle. Good morning, and welcome to AdvanSix's Third Quarter 2020 Earnings Conference Call. With me here today are President and CEO, Erin Kane; and Senior Vice President and CFO, Michael Preston. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change and the actual results could differ materially from those projected. And we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K as further updated in subsequent filings with the SEC.

This morning, we'll review our financial results for the third quarter 2020 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end.

So with that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane.

Thanks, Adam, and good morning, everyone. Thank you for joining us and for your continued interest in AdvanSix. I hope that everyone listening today as well as their families and coworkers are remaining healthy and staying safe. As you saw in our press release, our diverse product portfolio and low-cost caprolactam competitive advantage continue to serve us well as we navigate through the current environment. We remain focused on delivering for our customers while executing our business continuity plans with a vigilant focus on health and safety.

In the third quarter, we successfully completed our planned plant turnaround, which was originally scheduled for the second quarter. We continue to be very pleased with the results that our practices and protocols are delivering, while also managing the hundreds of contractors that came onto our sites to support those turnaround activities. Mike will detail our third quarter financials in a moment, where we believe our results reflect the resilience and strength of our business model. Notably, we've seen nylon sales volume returning to pre COVID levels, which is an encouraging sign as we monitor the pace of global and regional recovery. In addition, we generated higher cash flow in the quarter, through working capital improvement, cost management and reduction of capital expenditures. We continue to take a disciplined approach to cost management and expect $20 million to $25 million of cost savings for the full year compared to 2019. And this is in addition to the benefits associated with our natural gas boiler investment.

As we look ahead from a product line perspective, we are targeting strong caprolactam plant utilization at Hopewell, while optimizing our nylon mix across end uses, applications and geographies to position the business for success.

In ammonium sulfate, we expect a stable environment through the 2020-2021 planting season. And in chemical intermediates, we expect a favorable acetone industry supply and demand balance to continue, while also benefiting from ongoing investments for differentiated product growth within this portfolio. We also remain confident in our financial position.

At the end of the third quarter, we had approximately $128 million in available liquidity between cash on hand and the additional capacity under our revolving credit facility. We continue to expect robust cash flow generation in the fourth quarter, supported by a lower run rate of capital expenditures, further anticipated working capital improvements and receipt of cash tax benefits associated with the CARES Act, resulting in a reduction of leverage levels and positive free cash flow for the full year.

Now in October, we hit our 4-year mark as a public company. And while I'm very proud of all the accomplishments this organization has made since our spinoff, I'm even more excited about the opportunities that lie ahead. As we work to complete our planning for 2021, some aspects of which we'll share this morning, we are continuing to take a prudent approach of planning conservatively from a macro perspective. Our priorities will focus on continued operational excellence and improving through-cycle profitability, enhancing our portfolio resiliency through differentiated product growth and mix optimization and being strong and disciplined stewards of capital.

With that, I'll turn it over to Mike to discuss the details of the quarter.

Okay. Great. Thanks, Erin, and good morning, everyone. I'm now on Slide 4, where I'll review the third quarter financial results. And overall, we once again executed very well in a dynamic environment, highlighted by volume growth and strong cash generation. Sales totaled $282 million in the quarter, that's down about 9% compared to last year. Pricing overall was down about 14%, primarily due to lower raw material pass-through pricing, which was unfavorable by about 13%. Market-based pricing was unfavorable by about 1%, reflecting challenging end market conditions in our nylon and caprolactam product lines and lower sales prices in ammonium sulfate. This was partially offset by improved industry dynamics in chemical intermediates, particularly acetone. Sales volume in the quarter increased 5% versus the prior year, driven by end of season domestic granular ammonium sulfate sales and increases in nylon. EBITDA was $16 million in the quarter, down about $9 million versus the prior year, primarily reflecting the impact of our planned plant turnarounds.

I'll walk through the key year-over-year variances on the next slide. Earnings per share decreased $0.30 versus the prior year to a loss of $0.02 in the quarter. And lastly, cash flow from operations reached $36 million in the quarter, that's up about $2 million compared to last year, primarily due to the favorable impact of changes in working capital, partially offset by lower net income. CapEx of $16 million was favorable by roughly $19 million year-over-year, following the completion of several high-return growth and cost savings investments as well as disciplined management of our repair and maintenance spend.

Now let's turn to Slide 5. Now as we've shared in the last few quarters, we thought it would be helpful once again to highlight a few of the key drivers of our EBITDA performance from a year-over-year perspective. Pricing over raws was roughly a $1 million tailwind year-over-year. This reflected an approximately $5 million benefit from lower input costs, namely natural gas and sulfur, partially offset by a $4 million market-based pricing EBITDA decline. Tracking our key variable margin drivers, we saw continued net price of our raws pressure across caprolactam and nylon relative to benzene inputs, reflecting challenging year-over-year industry conditions and lower ammonium sulfate prices net of natural gas and sulfur input costs. This was partially offset by higher acetone spreads over propylene and improvements in other key intermediate products. Despite an increase in sales volume driving higher revenue in the quarter, volume and other items represented roughly an $8 million headwind on an EBITDA basis versus last year, primarily reflecting an unfavorable mix in our caprolactam and nylon business, driven by a large increase in exports. As a reminder, nylon is a space where we've seen the most impact from COVID, which is not surprising given the material ends up primarily in consumer-oriented products such as auto, to textiles to packaging and to carpet. While we're pleased that volume and demand is returning, there is a temporal unfavorable mix consideration, which we discussed last quarter as we placed product where demand exists. The impact of planned plant turnarounds to pretax income was $20 million in the third quarter of 2020, as expected, versus $5 million in the third quarter of 2019, representing an approximately $15 million headwind year-over-year as we successfully completed our larger Hopewell turnaround this quarter include our Kellogg ammonia plant. Productivity and cost savings reached $11 million compared to the third quarter of 2019, including plant cost actions, lower SG&A expense as well. In addition to benefits associated with a higher return natural gas boiler investment, we are targeting $20 million to $25 million of cost reductions for the full year compared to 2019 as Erin indicated. We estimate roughly half of the full year cost savings are more temporary in nature, with the remainder being more structural and permanent. We're keeping our focus on disciplined cost management moving forward while assessing our dynamic end markets.

Lastly, our real line cumene supply chain and logistics productivity represented an approximately $2 million favorable impact in the quarter as we continue to drive efficiencies while ensuring continuity of supply following the shutdown of cumene supplier Philadelphia Energy Solutions.

Now let me turn to the next slide. We've included our typical pricing and spreads across our product lines all together here on Slide 6. Consistent with our results, global caprolactam spreads over benzene continued to decline on a year-over-year basis in the third quarter, however, we have seen stabilization on a sequential basis from the second quarter of 2020. Although the industry remains in an oversupplied position globally and we're monitoring inventory levels through the value chain, we are encouraged by the recent improvement in demand. The Asia capro to benzene spreads averaged just above $600 per ton in the third quarter. This spread has been -- has stabilized for about 9 months now and continues to approximate the trough levels we saw in 2016.

Lastly, the Asia resin over caprolactam spreads averaged roughly in the middle of the typical $200 to $300 per ton range through the quarter. Overall, nitrogen industry pricing continued to decline on a year-over-year basis in the third quarter, reflecting the impact of lower global energy prices and also declined seasonality from the second quarter as we exited the heart of the domestic planting season. It's important to normalize pricing as urea contains 46% nitrogen, whereas ammonium sulfate contains 21% nitrogen. So while urea has an underlying influence on other nitrogen products, ammonium sulfate does have its own supply and demand dynamics, influencing the premium earned for the sulfur nutrient. With that, we continue to monitor competitive dynamics in light of North America supply additions, which came online at the end of last year as well as European imports.

And lastly, industry realized acetone pricing over refinery grade propylene costs further improved in the third quarter, tracking an improved supply and demand balance in the U.S. following final affirmative anti dumping duties, global phenol industry utilization rates and robust downstream demand. We've seen the continued expansion of the premium in the small/medium buyer acetone prices over the large biomarker on a year-over-year basis through the third quarter as propylene costs declined from last year. On a sequential basis, pricing in both segments further expanded, while propylene increased from trough levels after a significant drop in the second quarter. As a reminder, the small/medium buyer price is reflective of roughly 1/3 of the domestic industry, where pricing is predominantly freely negotiated.

Now let's turn to Slide 7. On the left side of the page, we've highlighted the drivers of the robust free cash flow generation in the third quarter. As anticipated, working capital was a source of cash in the quarter, contributing $20 million to the overall cash flow generation with inventory representing a $10 million favorable impact. Specifically, the organization executed well to drive a reduction of finished goods and WIP inventory, particularly in our nylon resin product line. We also remain disciplined around our cost and capital management, including all discretionary spending. Recognizing this year's challenges from a macro perspective, we've continued to tighten our belts across the business, resulting in noteworthy productivity and cost savings contributions. As we previewed, our CapEx run rate has come down quite significantly following the completion of several high-return growth and cost savings investments as we closely manage our repair and maintenance CapEx spend.

We continue to expect positive free cash flow in 2020, supported by further robust cash generation in the fourth quarter, resulting in a reduction of leverage levels, which I'll discuss in a moment. We expect working capital performance to continue to support cash flow generation as we exit the year with an anticipated continued reduction in overall inventory and the benefits of ammonium sulfate prebuy cash advances. From a CapEx perspective, we anticipate roughly $85 million for the full year or a similar run rate for the fourth quarter as we saw in the third. And lastly, as a result of the CARES Act, we do anticipate approximately $12 million of a cash tax refund in the fourth quarter, as we've discussed previously. So overall, a strong quarter from a cash generation perspective and an improving outlook as we head into 2021.

Now let's turn to Slide 8 to discuss our debt and leverage. We wanted to spend a moment to address the confidence we have in our financial position as well as clarify potential investor perceptions regarding our leverage levels. On the left side of the page, we've shown our leverage ratios, our net debt over trailing 12 months adjusted EBITDA going back to the end of 2018. Both net debt and adjusted EBITDA are calculated in accordance with the terms of our revolving credit facility. For example, our adjusted EBITDA adds back noncash stock-based compensation and other nonrecurring items, such as the possible restructuring charges recorded in 2019. Net debt includes our line of credit from the revolving credit facility, less cash balances of up to $75 million in other minor items. However, it does not include operating leases and unfunded pension liabilities by definition. Yet various external reporting sources include these amounts as debt following the new leasing standard, which creates the impression of increased leverage. Our operating leases as a percentage of debt tends to be larger than peers and has impacted the perceived leverage level despite not being considered as debt by our lending partners. You'll notice our leverage did increase over the last year as we've ramped up strategic investments in the business; namely our conversion to natural gas boilers at Hopewell, caprolactam quality and debottlenecking project and our R&D lab relocation.

In the third quarter, we do have a timing consideration tied to the impact of 2 large planned plant turnarounds within a trailing 12-month period. You'll recall, we had roughly $25 million planned plant turnaround in the fourth quarter of 2019 and just completed a $20 million plant turnaround in the third quarter of 2020. We are well within our maximum leverage covenants and expect net debt to be reduced into year-end toward our target range of 1x to 2.5x trailing 12 months adjusted EBITDA. Now that's supported by the continued robust cash generation I discussed earlier, the normalization of the planned plant turnaround impact in our trailing 12 months EBITDA as well as anticipated debt paydown.

Now let me turn the call back to Erin.

Thanks, Mike. I'm now on Slide 9 to discuss some industry performance considerations. The pie chart shown on the slide represents our sales by key end market.

Starting with the largest end market, building and construction. We primarily have exposure here through nylon carpet and phenol sales into oriented strand board. Now residential trends have improved through this period with housing starts and existing home sales continuing to grow, supported by record low interest rates and a migration to the suburbs and low-density areas. So while we have seen improved carpet demand from residential applications, this sector does represent a smaller portion of overall nylon carpet demand. Conversely, commercial construction trends have been lagging residential and have been more unfavorable in the wake of the pandemic, where nylon has a stronger foothold. We expect commercial construction to remain soft in the near term, until there is more visibility into office and hospitality trends post COVID.

Moving around the pie chart clockwise, ag and fertilizer is another significant end market for our business. We've seen and continue to expect steady demand for granular ammonium sulfate, as overall sulfur demand remains favorable as a key nutrient for crops supporting yields. As we move into 2021, we would expect that demand to strengthen seasonally, particularly as we move into the heart of the domestic planting season next year. We continue to monitor our expected planted acres for next year, with industry estimates roughly flat for corn around 90 million acres and crop prices, which have moved up a bit to more profitable levels for growers, though these do remain relatively low from a historical perspective. Our promotion work also continues through investment in soybean application research, marketing and grower education. The field trials continue to go well and recent testimonials have been favorable. So that continues to be an area of potential longer-term growth.

Moving to plastics. We've seen acetone demand, which is the precursor into acrylic screens used as protective equipment at retail, offices and other locations, remain healthy and expect that to continue. Auto demand has also been recovering. Now while we are further back in the value chain, we are monitoring production and sales trends, where we've seen China and Asia growing faster in recent months compared to the U.S. and Europe, where recovery has lagged. The remainder of engineered plastics remains steady, with consumer and industrial and electric and electronics demand for nylon returning to pre COVID levels. From a solvents perspective, we expect the favorable acetone industry supply and demand balance to continue. We also see growth momentum for our Nadone cyclohexanone product line, which is a solvent used in various high-value applications.

Now rounding out the pie chart, food packaging demand for nylon has remained robust, and we continue to see strong demand for our chemical intermediates into paints and coatings, particularly with do-it-yourself home improvement projects on the rise during the pandemic.

So let's turn to Slide 10 to wrap up before we move to Q&A. I'd like now to reiterate our core focus areas as we head into 2021. First, continued operational excellence and improving through-cycle profitability. This is at the core of who we are as a company. We're focused on driving improved earnings and cash flow through cost optimization and asset productivity, which creates strong operational leverage. We have efforts in place targeting improvements in rate, cost, quality and yield as well as further efficiencies in our planned plant turnaround programs. We expect the impact of planned plant turnarounds to be in the range of $25 million to $30 million in 2021 versus approximately $32 million in 2020 and $35 million in 2019. With operational excellence maturity comes a focus on evolving our sustainability programs and initiatives, even further to where we've come today. We recently entered into Operation Clean Sweep, whose program campaign is to eliminate plastic waste into waterways, pledging our commitment as a leading nylon resin provider in the North American plastics industry.

Our second priority is enhancing portfolio resiliency. Now 2020 has been a great example of how our diverse portfolio serves us well, whether it's our chemical intermediates offerings across varied end uses and applications, or driving the sulfur nutrition value proposition through ammonium sulfate product. Our portfolio diversification has complemented this year's ongoing benefits from our focused cost management and high-return capital investments. Differentiated product growth supports this key priority as well. And we've talked about this area of focus in 3 different buckets: high-purity applications, high-value intermediates and differentiated nylon. Individually, many of these products are still growing off a small base. But we've seen successes across the portfolio, including our oximes, cyclohexanone and wire and cable offerings. We'll be well positioned to capitalize on further improvement in the macro environment, and continue to expect an improved contribution from these product lines over the long term.

Finally, strong capital stewardship. We expect CapEx to be $80 million to $90 million in 2021, which does and will include a modest amount of spend towards continued high-return growth in cost savings projects. We are focused on improving our return on invested capital, and we'll remain disciplined in our approach as we look to drive long-term shareholder value. We expect leverage to be reduced to within our target range of 1x to 2.5x and have approximately $60 million remaining under our share repurchase authorization, and we'll continue to evaluate options to return cash to shareholders. We've also continued to build out our inorganic pipeline and internal capabilities as we assess potential acquisitions that would have strong portfolio coherence with our product lines and technologies. During this dynamic time, we are strengthening our ability to deliver long-term growth and believe we have the foundational elements in place for sustainable shareholder return.

With that, Adam, let's move to Q&A.

Great. Thanks, Erin. Danielle, can you please open the line for questions?

(Operator Instructions) The first question comes from Chris Moore of CJS Securities.

This is Stefanos calling in for Chris. Could you provide us a little more color and update on the differentiated product growth in high-value intermediates and also the high-purity applications?

Yes, Stefanos. We'll be pleased to and recognize this as an area of continued interest. And we're going to offer here some proof points on perhaps over the last couple of years in how we've continued to progress this strategic area for us. So as you pointed out, right, we do continue to view this portfolio and this effort in those buckets, right? High-purity applications, high-value intermediates, and places to drive differentiated nylon to high-value applications as well. And just as a quick reminder, right? These are all products that -- and product lines that have 1.5x to 2x the gross margin. So when you look at where we were in 2017, about 8% of our total AdvanSix sales fell into this bucket. That has increased to 11% this year, projected for 2020. So overall, about a 4% CAGR growth for the product lines in this bucket. I would note, though, that, that doesn't include our granular ammonium sulphate, which represents about 18% of our total AdvanSix sales. And again, we view that as high-value for the premium it earns as well. So when we kind of dive into where we're seeing some real tangible growth. I noted in my comments around Nadone cyclohexanone. Since 2017, that product line has grown 10% on a 3-year CAGR. Our oximes product line, we've talked quite a bit about our launch of our EZ-Blox product line, again, a drop-in replacement for MEKO. That's more than doubled in sales this year and has a 76% 3-year CAGR, kind of growing on that introduction of that product.

Now in nylon, our wire and cable offerings as well, they're up 20 -- sorry, 10% this year. And nearly 38% on a 3-year CAGR and also copolymer, which we introduced and again, growing off a small base. Remember, these are going into oftentimes specific niche applications that have to be qualified. That has actually seen a 60% growth this year. So I think even in a year where we've noted that our efforts with customer qualifications have been delayed and perhaps slowed, still seeing, again, a positive push here. And again, just a continued area of emphasis that we think will serve us longer term.

Got it. And then just one more, and I can turn back in the queue. So you talked about $20 million to $25 million of the full year 2020 cost reductions. Is some of that just 1x for -- onetime savings for COIVD? Or does all of that flow into '21?

Yes. So as we indicated on the call -- by the way, that range has increased. So we -- initially, when we discussed this on the last quarterly earnings call, we said in the range of $15 million to $20 million. We now expect that to be $20 million to $25 million. But we're estimating that roughly half of that is more temporal, and half of that is structural. So you want to think about that as half of the costs will be coming back next year. What I'll say is, year-to-date, we're pretty close to being in that -- within that range. In the fourth quarter, if you look at our costs, so for example, if you look at SG&A in the fourth quarter of 2019, our spend was relatively low. We had low IT costs, lower incentive comp costs as well. So we don't expect a significant year-over-year cost reduction in the fourth quarter, this upcoming fourth quarter from a year-over-year perspective. Just so you get a sense of how we're seeing things going forward here. And we're going to look to optimize really as much as we can and continue to be very diligent on our cost structure as we head into 2021 in this challenging environment.

The next question comes from David Silver of CL King.

Yes. I had a couple of questions. So the first would be on the revenue side. So when I just take the percentages of your revenues that you allocate to the -- your different product lines and then relate it to your total revenues, it seems like there was a very substantial sequential pickup on your chemical intermediates line towards an incremental $30 million of revenue this quarter, by my estimates. So I guess some of that is acetone, but I'm just wondering if you -- how would you characterize what was going on, on the chemical intermediates line during the third quarter? Maybe just give us some sense of where that substantial pickup in revenues were coming from?

Yes. So as you -- well, first of all, when you're comparing the second quarter to the third quarter, you need to consider the fact that utilization and demand was very soft in the second quarter as a result of the economic impact of COVID overall. So when you look at the third relative to the second, generally, volume was stronger really across the board. And when you look at the intermediates business specifically, we saw a strong revenue growth from the second to the third quarter in really virtually all of the intermediate products. And you point out acetone, we're not only getting improved volume from the third to the second quarter, but also pricing has moved up. We shared with you, with everyone the trends in pricing, particularly in the small and medium buyer, which improved sequentially, but we also saw improvements in phenol and Nadone and AMS as well when you look at the top line revenue. So it's really driven both by volume coming off of a lower quarter in the second quarter because of COVID as well as pricing, particularly driven by acetone.

Okay. Very good. Appreciate it. I had a question, I guess, about the -- sorry. So I had a question about your comment both last quarter and this one about expecting to generate, I guess, free cash flow for full year 2020. And I wanted to maybe just harp on the working capital element. So per the slides, in the third quarter there was a net working capital benefit of around, I don't know, $18 million to $20 million, I think $20 million, the way you laid it out. And I was certainly expecting a working capital benefit, but maybe not in the third quarter. Could you maybe comment on maybe what incremental working capital benefit you're looking for in the fourth quarter? So not so much earnings, but how much more maybe inventory or receivables might be effectively released? I mean, there was a pickup in your accounts payable in the third quarter, and I guess that has to be run down as well?

Yes. And what you'll see is sometimes, there is some variability on a quarter-by-quarter basis when you look at the working capital overall, but there a few things. And you are correct in indicating that in the second quarter -- in the third quarter rather -- we did get a $20 million benefit from working capital, of which $10 million was inventory. But when you break down the inventory, we saw a $26 million reduction in finished goods and WIP. And about 2/3 of that was really the nylon business. And so we talked about the fact that we expected inventory levels to come down as they were elevated during the first half of the year. And that was partially offset by raws, which were up $16 million in the quarter, and there is some timing considerations: as we purchase cumene, we also tend to hold higher balances here to mitigate potential weather impacts associated with hurricanes potentially down in the Gulf. What I'll say is as we go to the fourth quarter, still a very big focus on inventory reduction, and we anticipate inventory to continue to go down. We also anticipate the typical seasonal ammonium sulfate prebuy advances in the fourth quarter. That is also going to help. We may have some movement in some other areas. So I wouldn't anticipate working capital in the fourth quarter to be as large of a contribution from a free cash flow perspective. But I'd call it probably in the low to mid millions contribution in the fourth quarter, but we're going to continue to focus on it and drive cash to close out the year.

So just to clarify, low to mid single-digit millions? Is that what you were referencing right towards the end of your comment?

Yes. That's correct.

Okay. I'm going to just -- steal one more here, fit in one more. But I was hoping that Erin might be able to comment on, just a little bit more color on the global kind of nylon demand outlook. So I guess, in the third quarter, we finally saw some rebound in global auto production and certain regions are -- their industrial activity levels are picking up. And I'm just wondering from your perspective, are things progressing as you would normally have expected? In other words, is the uptake of nylon into the typical end markets progressing, or -- as you might have anticipated? Or is there something different this time either regionally or by end market where that's maybe causing -- that's maybe leading to your commentary earlier on about maybe marketing your nylon a little bit differently or placing your pounds a little bit differently than you traditionally might? So maybe just a big picture on where you see nylon demand maybe stronger than you anticipated, maybe weaker, maybe some new outlets that you hadn't counted on maybe when the year started?

No, of course, David. And as I think it's -- at this point, we've been communicating and certainly, you well noted, and that nylon is a space where we have seen the most impact from COVID this year. And of note, really conditions on the front end of the pandemic weren't necessarily all that great to begin with, given the long market in which we're operating. So as we noted, volume has been returning to pre COVID levels. But it's returning in Asia at a faster clip than we've seen sort of regionally first there, and which is what we expected, I believe, when we chatted last time, from the standpoint that they had the pandemic a bit more in control. And certainly, when you look at -- of note like in auto, for instance, China car sales only down 7% year-to-date with a lot of, I think, momentum being built in the last several months. Which is being lagged, I mean the U.S. is still down 18% into 19%, even though, certainly, again, you're starting to see demand pick up here and Europe is further lagging that at about 29%. So we are seeing this regional recovery very differently as sort of the global pandemic progresses. So I think on one hand, what that's allowing or sort of necessitating us to do is we've been driving the higher utilization rates, certainly heading into our turnaround and post the turnaround is, as we say, kind of meeting demand where it exists. And that is one consideration why our exports are higher as the U.S. has been lagging. Now as we've come through the third quarter and headed into the -- into the fourth, we continue to see a pickup, right, in North America, certainly in carpet. Even though commercial is down. Again, that residential pull is coming through. We're seeing the engineering plastics in sort of the non-auto spaces, returning to pre COVID levels. And auto is kind of on the tails of that. And so I think there's -- clearly, we're -- we've been operating and stabilized at trough levels. It's hard to say, okay, where do we see a turn. And our focus will have to continue to be on driving the asset flexibility and the agility to ensure that we're meeting the recovery as it exists. And I think even as you noted this morning in your note, it's still going to be uncertain, right? If we were here talking a couple of weeks ago, Europe looked a little bit different. We have a resurgence ongoing. We're watching that very carefully. The -- but there are signs, right? The textile market seems to be perking up, certainly for demand in Asia. You see signs at least that engineering plastics is moving forward. Packaging will continue to remain robust. But I think we just have to watch that macro view here, which really could impact the regional recovery, which is what we really need to see, both in Europe and in the U.S. to really push the full global recovery up as it joins Asia, so. And it's been -- I think what we're seeing, again, the signs of it, there are still some puts and takes, right? We had talked about, for instance, that the U.S. rug and mills had come off the bottom, right? They faltered or wavered here a little bit in the last month. And so we might see some seesaw recovery potentially in nylon, just with the broader macro.

(Operator Instructions) The next question comes from Vincent Anderson at Stifel.

I was hoping you could just talk really quick about the turnaround guidance for 2021. Was there some timing differences on maybe the smaller maintenance projects that has it lower year-on-year? Or is that just more results from your execution improvements?

Yes. Happy to address that. I think it's a combination, Vincent, as you may recall. So we would remind you that we alternate sort of our large asset turnarounds every other year. So we did Kellogg this year. The sulfuric acid plant will be up next year. When you look at sort of the scope that we've nearly locked, it will be more of a maintenance scope versus a large capital expense scope, which has influence on sort of our, I would say, wrench time considerations. Which would have impact on our sort of absorption and rates that we could run. But it also does reflect, I think if you looked just at our continued execution over the years, we've talked about the fact that we look at global strategies, integrated scheduling, using our lean tools to take out waste, strong partnership with our turnaround partners and I would note, we've actually elevated inside our organization. So we actually have a turnaround leader on the leadership team of the integrated supply chain group now. We've elevated turnaround leaders at every site onto their leadership team. And with this consistent focus that we have to drive efficiency, drive productivity, drive as well the safety and startups of these turnarounds. So it definitely is a combination, but we're pleased with where we continue to head.

Excellent. And then if I missed it, I apologize. But specifically, volumes of ammonium sulfate into Brazil this quarter, how did they do? And then in the event that you sell through distributors that exchange basically crop inputs for pledged crop output from farmers, which is common in some parts of Brazil. In the event that you distribute through them, we've seen this massive preselling of next year's crop by Brazilian farmers. And I'm wondering if you have seen that in any kind of early conversations? I know you mentioned prebuying for, I assume, the U.S. season, but any comments there?

We can talk about that. So when you look at sort of sequential considerations, overall, from a seasonality perspective, we typically talk about, again, that $10 million to $15 million range because our mix changes in the quarter. We would have ended up on the higher end of that -- or sorry, the more beneficial end of that, closer to the $10 million. And for a few things. One, we saw the season kind of extend into July on the domestic side. So that was -- that was a positive for us in the quarter. And certainly, we did see, again, buying was up on the standard side into export sequentially as we expected as well. So I would say that the quarter more or less progressed as we would have had anticipated, right, in our remarks coming into this call. And as it pertains to sort of pre-buys, maybe just a clarification. The pre-buys we do are for the domestic granular season. So we really aren't participating in that relative to the export side of the house.

Okay. All right. So we'll maybe hear more about that early next year. All right. And then so last one. So the balance sheet is absolutely moving in the right direction. You still have this big discount between your shares and the replacement value of your assets. So if I'm thinking about acetone and what has changed structurally with domestic supply sources, obviously, as a positive for you maybe some incremental headwinds on phenol from MDI taking share in OSB over the long term. Does this open up any opportunities or any thoughts around monetizing maybe a minority interest in your cumene oxidation unit or through a long-term product offtake agreement that maybe unlocks the asset's value a bit and derisks a portion of your cash flows?

I mean I think the way I would best answer that for you here today, Vincent, right? When we think about our forward opportunity, again, as you note, and thanks for the notice that we're moving in the right direction. We wanted to make sure that, that was clear and that we have confidence in our ability to drive free cash flow, whether it's in growth amounts from a conversion perspective and also from a yield perspective. When we look at sort of our ability and opportunities to optimize the system, I think the best way to say it is that we will continue to look up and down the value chain. We're not opposed to the appropriate partnerships that allow us to succeed for the long haul. And I think as those particular projects and/or opportunities on an inorganic basis firm up, then that would be the right time for us to bring those to [light].

This concludes our question-and-answer session. I would like to turn the conference back over to Erin Kane for closing remarks.

Great. Thank you all again for your time and interest this morning. Our results this quarter again demonstrated the strength of our business model and the commitment of our roughly 1,500 employees to delivering best possible outcomes as we execute for the remainder of 2020 and head into 2021. We have a focused strategy that we're executing against, built on a rigorous commitment to operational excellence, enhancing our portfolio resiliency and being strong and disciplined stewards of capital, all of which are underpinned by our global low-cost position.

So with that, we'll look forward to speaking with you again next quarter. Stay safe and be well.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.