Participants

Adam Kressel; VP - IR and Treasurer; AdvanSix Inc

Erin Kane; President, Chief Executive Officer, Director; AdvanSix Inc

Michael Preston; Chief Financial Officer, Senior Vice President; AdvanSix Inc

Charles Neivert; Analyst; Piper Sandler Companies

David Silver; Analyst; CL King & Associates

Vincent Anderson; Analyst; Stifel

Presentation

Operator

Good day and welcome to AdvanSix First Quarter 2024 earnings conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President of Investor Relations and Treasurer. Please go ahead.

Adam Kressel

Thank you, Cindy, and good morning and welcome to AdvanSix as first quarter 2024 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 dot 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 will review our financial results for the first quarter of 2024 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 President and CEO, Erin Kane.

Erin Kane

Thanks, Adam, and good morning, everyone. Thank you for joining us and for your continued interest in AdvanSix. As you saw in our press release, our first quarter performance was impacted by the previously announced process based operational disruption at our Frankfort, Pennsylvania site, along with a delayed ramp to targeted utilization rates across our integrated value chain. The total unfavorable impact to pretax income in the first quarter was approximately $27 million comprised of the impact have lost sales and other additional costs, including purchases of replacement products and incremental plants. This disruption was fully resolved in the first quarter, and I would like to once again thank our customers, partners and teammates for the collaboration to mitigate impact on the value chain.
Looking ahead to the second quarter and remainder of 2024. There are a number of operational and commercial tailwinds. At our back. We return to targeted plant utilization rates and are well-positioned to serve our key customers, particularly in plant nutrients. As the domestic planting season progresses and in our acetone portfolio amid tight global supply and demand, we also expect nylon industry spreads to modestly improve through 2024 off 2023 trough levels integral to our stakeholders. Importantly, our customers. I'm proud to share that in recent weeks, we've achieved a number of external recognitions for our corporate social responsibility and sustainability performance. We earned our third consecutive platinum rating by EcoVadis, received strong ratings by CDP for water security and climate change. And we are certified by ISCC. in place across our manufacturing sites at frame for cobalt and Chesterfield, we had a proven ability and demonstrated playbook with our diverse product portfolio to navigate and manage through various cycles and macro dynamics evolving as we go to meet the needs of our end markets. As a diversified chemistry company, we take pride in our long legacy of success and track record of serving as a trusted partner for our customers will continue to position our business for long-term sustainable performance through our smart and disciplined investments and remain focused on accelerating growth in the most profitable areas of our portfolio. And let me turn the call over to Mike.

Michael Preston

Thanks, Erin, and good morning, everyone. I'm now on Slide 4, where I will provide a summary of the first quarter 2024 financials sales of $337 million decreased approximately 16% versus the prior year. Market-based pricing was unfavorable by 9%. This primarily reflects reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen supply environment as well as lower nylon pricing due to unfavorable supply and demand conditions. Sales volume decreased approximately 7%, primarily driven by lost sales resulting from the first quarter operational disruption. Raw material pass-through pricing was approximately flat. Adjusted EBITDA was approximately $1 million, down from $65 million in the prior year period. The impact of the first quarter operational disruption and unfavorable market-based pricing, net of raw material costs were the primary drivers of the earnings decline, volume mix and other items were unfavorable year over year, primarily reflecting lower production in the quarter. Adjusted earnings per share was a loss of $0.56. The effective tax rate was 25.7% in the quarter versus 21% in the prior year, primarily due to a larger tax benefit last year related to the vesting of equity compensation. We continue to anticipate our full year 2024 effective tax rate to be approximately 24%. Free cash flow was negative $72 million in the quarter compared compared to negative $23 million in the first quarter of 2023. Cash flow from operations declined $38 million year over year, primarily as a result of the lower net income and the impact of changes in working capital.
Capital expenditures of $35 million in the quarter increased $11 million versus the prior year, primarily reflecting increased spend on enterprise programs and other maintenance projects. On a trailing 12-month basis through the first quarter, our debt leverage was approximately two times when normalizing for the impact of the operational disruption, we anticipate debt leverage to remain within our target range of 1 to 2.5 times in 2024. We also anticipate free cash flow to improve in the second quarter sequentially on higher earnings. As a reminder, we incur an unfavorable impact on our cash flow in the first half from the unwinding of ammonium sulfate prebuy cash advances as we do each year.
Now let's turn to Slide 5. Here we highlight the key drivers of our first quarter adjusted EBITDA performance sequentially from the fourth quarter of 2023. In the quarter, we began to see tailwinds from a commercial perspective with pricing of raw materials improving by $11 million, tracking our key variable margin drivers. Ammonium sulfate on a net price over natural gas and sulfur basis was up sequentially as prices strengthened through the quarter, coupled with lower input costs, chemical intermediates price over raws spread increased as well, driven by an expansion in Acetow margins over propylene performance across our nylon portfolio over our key raws was a modest headwind sequentially, while caprolactam was relatively flat volume, sales mix and other items provided improved performance of $7 million, largely reflecting lower nylon export sales in the first quarter compared to the fourth quarter, SG&A costs were approximately $1 million favorable on lower functional specs.
Finally, as discussed, the operational disruption was $27 million unfavorable, and we had an additional $5 million of planned plant turnaround impact in the quarter.
Now let me turn the call back to Erin.

Erin Kane

Thanks, Mike. I'm now on slide 6 to further discuss each of our key product lines. Starting with nylon, seeing global industry spreads stabilize in the first quarter. While the Asian benchmark saw declines following the sequential improvement in the fourth quarter. As we expected, we are trending favorably, albeit slowly off the 3Q 23 trial demand globally remains soft. Ball bearing regional dynamics, including competitive intensity and trade flows, continue to impact regional pricing. Despite long supply demand fundamentals, estimated operating rates out of China remain elevated, resulting in continued now and exports to the rest of the world.
Here in North America, demand has been stable, albeit on a lower base with continued weakness in building and construction markets. As a result of the higher interest rate environment. Supply has been tighter in the region with production downtime across the industry, which has led to modest pricing increases trending into the second quarter.
For our business, we continue to focus on driving productivity to improve unit profitability, optimizing our sales mix through target customer selling, while leveraging our competitive position to meet demand where it exists in the fertilizer space.
Global nitrogen pricing began the quarter relatively steady and began to decline mid-March. In contrast, we have seen ammonium sulfate pricing strengthened through the first quarter and into the second quarter amid continued software demand growth and reduced supply in North America. While we did see cautious buying behavior at the start of the year. We've now entered the heart of the season with a strong order book, and we are seeing strong pull out of terminals for product line to the field to support nutrient demand for traditional corn application, along with growth on soybeans. The actions we drove to position ourselves to capitalize on the expected strength of the season is paying.
Lastly, in Chemical Intermediates industry realized acetone prices over refinery grade propylene costs continue to improve in the first quarter with spreads sitting at multiyear highs. While acetone demand has seen softness, particularly into the large fire and applications with some downstream and a producer sitting in turnarounds in the first quarter, we see supply is tight globally. This has been supported by persistent lower global female operating rates from reduced demand into value chains, serving building construction and other industrial applications.
Let's turn to Slide 7. We're encouraged by our improved outlook heading into the second quarter with both operational and commercial benefits anticipated. Operationally, we returned to our expected robust plant utilization rates, ensuring we are well positioned to serve our customers across each line of business we continue to expect capital expenditures in the range of $140 million to $150 million in 2024, reflecting increased spend year over year to address critical enterprise risk mitigation and growth projects. Projects within our SUSTAIN program are progressing well. We now anticipate reaching approximately 70% ammonium sulfate, bringing the conversion by the end of 2024. As a reminder, sustain stands for sustainable. You SRP to accelerate increased nutrition. I mean continued attractive growth program to robust investment return profile at our 20 plus percent target hurdle rates. We also continue to expect the pretax income impact of our planned plant turnarounds to be $38 million to $43 million in 2024. Of note, the timing of our larger turnaround has now shifted from the third quarter to the fourth quarter as we firmed up our planning for the year. As I shared, we see and anticipate positive trends commercially for ammonium sulfate and acetone to continue and are cautiously optimistic on nylon to modestly improve as the year progresses.
The strength of our business model and our position as a diversified chemistry company will serve us well, and we continue to expect performance this year to demonstrate our resilience. We've consistently come through cycles, a stronger company that can maintain robust investment for growth, seeing good cash conversion over the long term and structurally improve the underlying earnings power of our business.
Let's turn to Slide 8 to wrap up before moving to Q&A, I'd like to further discuss the recent highlights related to our sustainability initiatives and performance. As I mentioned earlier, we are we were awarded our third consecutive platinum rating by EcoVadis, an independent corporate social responsibility Assessment Agency. The Platinum rating puts the Company in the top 1% of all companies. This is a compelling recognition of the hard work and achievements of our AdvanSix teammates who embed responsible and sustainable business practices into delivering for our customers, communities and our stakeholders every day. In addition, we were once again rated on our water security and climate practices by CDP, a global nonprofit that operates the leading environmental disclosure platform. Our submission was recognized in the top leadership category with an improved A-minus rating for water security, and we maintained our strong BEE rating for climate change. Both of these ratings compare very favorably with peers across the globe and within the chemicals industry.
Finally, we recently were certified to the ISCC. plus standard for three of our manufacturing sites, Frankfurt, Hopewell and Chesterfield. ISCC. plus is a globally recognized voluntary certification system for developing sustainable supply chains. Certification validates the adoption of transparent and traceable practices, particularly for organizations applying a mass balance approach to tracked feedstocks and their sustainability characteristics. It's also complements our existing post industrial recycled and post-consumer recycled nylon product lines by enabling solutions that reflect our sustainability focus while also helping our customers transform their own environmental goals. Together, we are building a more socially responsible future.
With that, Adam, let's move to Q&A.

Adam Kressel

Cindy, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Charles Neivert, Piper Sandler.

Charles Neivert

Morning, guys. Just a couple of points, a worthy one, and I know on the nylon side, it's an outcome of the export of nylon has been reduced. How far away are you from, I say, sort of that pre run normal? And how long do you think it'll take you to get back there.
And the other question, as you know, from the downtime and to the degree, to what degree do you think it may have constrained your ability to move product into the agricultural space. I mean, how much product is lost in that respect? Or will you be able to catch up?
And lastly, as you move to more granular, I know you guys have talked in the past about our granular and standard and the South American markets, which take your product and the non-US agricultural season tends to be more toward a standard side are they taking more granular now?
Yes, I'll start and I'll leave it there, too.

Erin Kane

I agree, though. Let's unpack that a bit here today. Thanks for the questions on. First on the nylon exports as we head out. But again, last quarter, we had anticipated a higher rate of exports on consistent and probably more with our exit run rate of 2023, which was on in the high 20s. And when we finish 2024, certainly with the operational disruption and our targeted focus on optimizing mix and in sales and certainly with our contract and domestic customers, that rate dropped to about 15%, which is a lot closer to what we've shared in the past as a historical sort of norms, we think that will probably ebb and flow a bit here as we move through the year. Obviously, as production across the industry is constrained on, it has been in the past couple of months. And so getting our value chain realigned here in North America. And then certainly perhaps as we progress and see how the markets improve in the second half, whether we can maintain those rates or if you have certainly export will increase. But certainly, our cost position and capital lactam allows us to meet demand where we really need to. And then we're highly focused on on the targeted selling mix optimization on unit profitability in nylon Is that part A. And B asked about a US arm, I would say there's practically no impact to a US arm. We did go out and done and purchased in the first quarter and as you know, so that was done. So let me reframe sorry, I was thinking more in the season here because I think that's what you're pointing the question, but the frame and just to be clear, certainly sales in the first quarter for ACS were down on, but we did purchase to protect the heart of the season and our customer demand in Q2. So we are in good shape as we are here now in the season going to going to market and allowing our customers and farmers to be unsuccessful in their planting season and so on.
Just wanted to clarify that. And then your third piece relative to granular and standard and at the highest level, right, we're expanding our granular on sales and oil production to meet sales growth here in North America. And so you know, certainly we have and always have had limited export granular in the first half. And as we continue to upgrade on that version level, those would add those products are in our focus here for domestic. So we'll still maintain some sales in the export side. We've got some great customers in various regions that will continue to take the standard news. I did I can capture the essence of where you are. Is there any further clarification now?

Operator

Charlie, would you like to respond?

Charles Neivert

I'm sorry, I missed the response side, but was that question back?

Adam Kressel

We'll come back to you, Chuck.

Charles Neivert

Okay.

Operator

David Silver, CL King.

David Silver

Yes, hi. Good morning, and thanks for joining us today. And so I kind of have a scatter of questions here on. So I apologize in advance if it drops around a bit. You know, I listened with interest with your comments about how AS. pricing has progressed during the run-up to the planning season and timing looks looks very favorable. If there is another issue that I was hoping you could maybe lend some perspective on and that is the relationship between US pricing and urea pricing. So there's always some variation, you know, and certainly different different pricing points or delivery points, you know, have different relationships, but that said, I mean, by the information I've been tracking, I mean, it looks like, yes, pricing is unusually favorable for you relative to urea. And I'm just wondering if you could point to something that that might have driven that relationship more in a US this favor? Is it your outage, for example, but more to the point, I mean, how sustainable would that you know, unusually favorable or historically unusually favorable relationship persist. I'll stop there. Thanks.

Erin Kane

So and so maybe just to reground everyone in and ourselves, we have nitrogen and sulfur in our ammonium sulfate product lines. And we talk about the relationship on coil and nitrogen to urea because that is the largest nitrogen fertilizer and sets a nutrient value for the nitrogen and so we really are marketing and providing ammonium sulfate for the sulfur in our nutrition and you know, certainly has proven to deliver pound for pound, the most readily available sulfur and nitrogen to a wide variety of crops. So when we price, we have a base consideration, which is why I like you that you track where we're an agent is headed but we really have always been focused on pricing to earn the premium for sulfur as well. And effectively, what we are seeing right now is on is the value that add customers in the value chain has placed on sulfur and due to the yield benefit in what has become a tight market for a U.S. as well. So it really is that the fundamentals, there is a linkage to the base nutrient value. But again, that focus on the premium that's earned in that premium is that is earned in a supply demand environment sulfur nutrition of also rally has been limited. So on, you know, certainly we see that demand growth varies from the work we've been doing on soybeans and certainly several customers down the chain this season have reported a big uptake on sulfate use this season on soybeans. And so I think it's those combination of factors on day that are leading to the opportunity and the pricing situation that Tom referenced.

David Silver

Okay, thanks. Thank you for that. And you know, I was getting a little feedback when Charlie was asking one or two of his questions. So I apologize if I'm making you repeat yourself, but this goes back to your comment about increasing the percentage of your ASP in the granular form to up to 70%. And I'm just kind of wondering, I mean, your sales strategies vary in different seasons of the year and other factors. But then in thinking about having the flexibility right to increase the percentage of granular product premium priced product to maybe 10 percentage points. As you look back, is there has there been a period in the past? I don't know, five to 10 years where AdvanSix wouldn't benefit from selling their maximum output in the form of granular? In other words, is this really adding flexibility or is this just increasing the amount year-after-year that you intend to sell in the granular form as we have been steadily increasing granular conversion within our within our operation for quite a period of time.

Erin Kane

And certainly you know that program here for SUSTAIN is targeting a total on direction to get to 75. We are at we are tracking ahead of our original plan and reaching 70% here this year and a little bit the heart of it. And the simple answer is no, there is not a time in history where granular wouldn't always be more profitable than standard on and is the growing form right? As we think about mechanized agriculture, the developments on the needs of our customers, particularly in North America, and that's just us it really the fundamentals in our more-for-more itself are very consistent with our long-term strategy. And the investment here allows us to take this really some significant step forward.

David Silver

Good. Thank you that that makes my modeling that much simpler. Thank you. I would like to switch over to your comments about nylon and how on you anticipate some moderate improvement this year after what's been a very difficult stretch, as you know, overall in that particular product line nylon in Cabrero on and I have to confess I'm I'm a little bit, you know, I don't know what you were, I wouldn't say confused, but I'm questioning kind of the thought process behind, you know, anticipating an improvement in other words, and I apologize, but you mentioned that nylon production rates in China continue to be frustratingly high. And I'm not really aware of a dramatic pickup in auto builds or I don't know, capacity closures or regulatory actions, whatever but maybe just a little bit of background or perspective on why you're anticipating after a very difficult stretch why there should be some moderate easing in the the supply in the fundamentals such that, you know, there might be some improvement or you anticipate some improvement in your financial results there. Thank you.

Erin Kane

Yes, it certainly is one where I think, again, the tone and the view is we are cautiously optimistic here. I am I again agree that when I think about sort of the macros and you know there, there are signs and considerations relative to continue sort of robust strength in auto and packaging. Those are the strongest segments in North America and in lively sort of building construction is the larger end market and that is the one that has lagged. And so, you know, certainly as we look to residential and commercial construction and the opportunities that there, we like many others are watching this space associated with interest rates and other considerations that will allow the virus and all that to come back in those spaces. And so that that's sort of the North America piece when we think about really the broader sort of Asia consideration in there, there are logistics constraints in certainly challenges in the Panama Canal and just sort of the Middle East are constraining on logistics come into Europe and coming sort of East. So there's there are some things that play out as we go.
And And then third, would you say is not all cycles, perhaps strategy that history does, but we are we are standing in this downturn now relative to in history and when some structure usually comes back into the marketplace, and you see that already in unconstrained operating rates in Europe and the rest of Asia. And we've had some internal shutdown and in Japan and it is I do think that there are no slow science here. This is not only a fast recovery. We don't believe that we should continue to see are these that would be our expectation of starting to tick up off the trough, which we have seen over the last few quarters and albeit it, it's well.

David Silver

Got it. Thank you. I appreciate that. And maybe just one last question on this would be with your Chemical Intermediates segment or product line. And you did talk about the strength in acetone, but I was wondering maybe if you had some comments about the progress or whatnot on the USA. means side of the business, in other words of the various intermediates there. And in particular, I believe, you know, ag is a pretty significant end market for us, the output there. And I'm just wondering if what you're seeing from the USM. means intermediates side is driving with with your comments on ammonium sulfate and you know as well. Thanks, Al.

Erin Kane

No, certainly and you know it when we kind of think about broader ag, there really is a segmentation between fertilizer and crop protection in that chemical and oil in the US. That means products fit into that ag chemical space, given other, you're really flowing into the herbicide on value chain. And we like we see others going to still report that there is our destocking is generally slow on demand, which is, again, I think consistent with what we've seen, others in the space report and certainly ARM is what we're continuing to work through. So and I think sense is this is the season that sort of corrects, you know, the prior year, but that is a headwind for us in the U.S. I mean, space, however, we continued to progress in and certainly the project pipeline on that was part has been the core investment thesis here relative to being able to grow the business on given the asset base that Tom that we acquired and that continues to progress. So that is a positive here that we continue to watch for here and stay focused on and the market dynamics on circulation. It's for themselves as we come through into the next ag season on the base.

David Silver

Okay. You hit right on the aspect. I was wondering about. Thanks very much. I'll get back in queue.

Operator

Vincent Anderson, Stifel.

Vincent Anderson

Yes, thanks. Good morning, everyone. Saying I think I'll just segue off, David real quick on BEYOND ag and U.S. amines. Could you maybe just level set how your mix has been trending, say, the last two, three quarters. So including things like your higher value nylon products or film business, your ROC seems kind of stacking up of those little buckets and how that's what and if we start seeing a broader demand recovery, is there a bit more pent-up margin and with those coming back in relative terms or has it been pretty stable?

Erin Kane

Yes, it's some it's certainly below when we think about those those product lines that have stickier and more differentiated margins, as we've shared that have been impacted by the downturn in most notably probably is our NATO and product line, which is a high-purity application into, you know, solvents and electronics. And you know, that is still quite weak and so I think as we see that recovery and certainly there's a lot of in our broader macro trends that should support that going forward, as you indicate, that will be a that will be a positive as we see that come through.
And likewise on Coatings in Europe has been a bit of a headwind as well here on the vaccine side for to be our Easy box. And so you'd have a differentiated products haven't been immune to the broader and in a macro considerations. And certainly as we see more broad-based recovery that will come back in as a as a tailwind as well in the future.

Vincent Anderson

Okay. That's helpful. And then kind of a quick one on U.S. I means I think when you when you first bought it, you mentioned that you had a favorable acetone contract, at least for the time being, but something like a swap agreement could be a possibility in the future to get that asset more closely integrated into your acetone cost structure. I'm just curious where we stand with the how long that contract lasts and if still makes sense to be looking at getting it closer to your acetone?

Erin Kane

Yes. I think that the easiest way to think about this some Vincent here is just like in all of our, you know, supply agreements and considerations. As you know, all options are open. We have a good and relationship and partnership with the current supplier of the flexibility of work. There is as you could imagine in this space, some coal producer relationships given shut down operations, whatever it may be swaps come into play. And so it I think it's simple to say we keep all of our options open relative to being able to drive the best decisions, profitability and growth for the Company.

Vincent Anderson

Okay. Fair enough. And then coming back to the move in the turnaround schedule for this year. I'm just curious if any of that was driven by a need to have more time to rebuild inventory ahead of it and kind of given where it sits in the year. Should we anticipate maybe a little bit less participation in the export markets in the third quarter for ammonium sulfate compared to a typical year?

Erin Kane

And so it was when we really moved it. It's subtle events and it's about two weeks of it. As I when I think about it, you know, September into October, there were some customer accommodations that were that we manage on because we do impact folks like our CO2 customers and others. So on a US mix shouldn't really change significantly, but it's just a matter of just lining this thing up and it is a modest move.

Vincent Anderson

Got you. Okay. That makes sense. And then just last one, since you brought up your recycled nylon again, I wanted to maybe just touch base on how you're thinking about the commercial strategy there. If it's something you think you can basically place into a nice long-term supply agreement at attractive is margins? Or is this going to have to be a bit more nimble just based on how much demand there is for recycled nylon today?

Erin Kane

Yes. So in, I think it's probably going to be a bit of a mix as we move forward. Certainly, we have some customers that have been quicker adopters of kind of layer those into their contracts but certainly this is a lot of targeted selling with our customers that have, you know, strong interest with consumer-facing in our request and commitments. And certainly the ISEC. plus was a significance, I would think steps forward because there were customers in the packaging industry and to some extent those in engineering plastics as well that have been requesting this verification and certification as a substantiation of PCR and try that will allow them to now really as is that and this into their their change out of.
Yes, I think it's the right step forward and a lot of interest in these types of products, but a lot of work that has to go through the value chain to earn the premiums got Catcher.

Vincent Anderson

And can you can we actually take like one step back and explain from an advanced six point of view, how PIR. versus PCR. works just because I only think of you as a virgin nylon producer. And so PIR. makes sense, but I'm not entirely sure how PCR fits in.

Erin Kane

Yes. So inherently the post industrial you know, plays in through our our asset base rate and are capturing and recirculation loops on the PCR by the certification, take into consideration the on the materials we bring back from our partners.

Vincent Anderson

So basically waste from their own manufacturing lines.

Erin Kane

Yes, and you name it. A lot of this is a like Alabama recapture, and we reincorporate that back into our system from our downstream customers.

Vincent Anderson

It's very interesting.

Erin Kane

Okay.

Vincent Anderson

I'll chew on that, and maybe we'll circle back on the next quarter.

Erin Kane

You got it. Thank you.

Operator

Charles Neivert, Piper Sandler.

Charles Neivert

Please, our dealers have had issues in the inventories, not around necessarily, but within the chain and a lot of destocking. And largely, it seems that most of them commented that that destocking was over with and they could you sort of resume a more normal pace of sales. Did you guys run into any major destocking issues over the last. We have a few quarters and if so, have they basically dissipated at this point? Are we done with them? And going forward, we should see more regular cadence of sales going forward?

Erin Kane

Yes, our sense is, you know, again, we probably saw a variety of things here, depending on which line of business have been, I think certainly in nylon. We saw that predominantly through last year. And I think some words we will do that and most of that value chain is sorted. And what we're seeing now is a more typical demand signals that we would expect in intermediates where we play, I think likewise there as well with the with the outstanding consideration of ag chemicals because where our materials get pulled through or in combination with other materials and until no downstream materials are our coal through. But I would say we're we believe we're really kind of mostly done on and in ag, the goal there, as you well know, is to make sure that we have the the inventories as low as possible at the end of the season. And that allows us for, you know, strong reset in the fall, which would be our our intent and expectation for this year as well.

Charles Neivert

And that rate clears it. And then whatever I missed on the last go around apparels have working at home sometimes.

Erin Kane

Okay. When it comes to pharma. Other than anything that we need to follow up.
One, I tried my best to ensure that I talk about all three parts of your question, but I think we might have had some connectivity issues, but if there's anything that we can help to clarify on, you know, certainly reach out okay through the use of coal as a result of clearly believing weakness.

Charles Neivert

Thank you. Perfect.

Erin Kane

You bet.

Operator

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

Erin Kane

Thank you all again for your time and interest this morning. We hope this call and discussion that clarify the operational and commercial tailwinds that are constructive and supportive to our anticipated rebound in earnings and cash flow performance. As we head into the second quarter, we feel very good about the strategies we've implemented and our continued investments to support expectations for Advancis has long-term sustainable performance and covenant this year presents a great opportunity to further maximize our value to shareholders with that, and we look forward to speaking with you again next quarter. Stay safe and be well.

Operator

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