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LyondellBasell's Q2 FY2025 results missed expectations, but sequential margin recovery and strong cost discipline signal early signs of operational improvement despite ongoing macro and regulatory headwinds.

# LyondellBasell Q2 FY2025: Sequential Margin Recovery Amidst Challenging Market, Underlying Strength Emerging

---

## Executive Summary

- **LyondellBasell (LYB) reported Q2 FY2025 results below consensus on both revenue and EPS**, with revenue at **$7,658M** (down **12% YoY**) and **GAAP EPS at $0.34** (vs. $2.82 YoY). However, **underlying EBITDA excluding items improved 24% sequentially to $715M**, signaling early signs of operational recovery.
- **Earnings quality was mixed**: while headline margins contracted sharply YoY, **EBITDA margin excluding items rose to 9.3% from 7.5% QoQ**, reflecting effective cost discipline and operational leverage, particularly in the O&P Americas segment.
- **Management struck a balanced tone**, highlighting sequential improvements, robust cost controls, and a focus on liquidity. The company paused share buybacks to preserve cash and maintain its investment-grade rating, while reiterating its commitment to the dividend.
- **Risks remain elevated** due to macroeconomic headwinds, volatile feedstock prices, and regulatory pressures in Europe. However, **opportunities exist in working capital improvements, cost-saving initiatives, and investments in low-carbon technologies**.
- **Catalyst watch:** Investors should monitor H2 FY2025 working capital release, progress on asset sales, and further margin recovery in O&P Americas as near-term drivers.

---

## Performance Snapshot

| Metric         | Reported   | Consensus | Surprise | YoY Change |
|----------------|------------|-----------|----------|------------|
| Revenue        | $7,658M    | Miss      | -        | -12%       |
| GAAP EPS       | $0.34      | Miss      | -        | -$2.48     |
| EBITDA (adj.)  | $715M      | -         | -        | -          |
| EBITDA Margin* | 9.3% (adj) | -         | -        | -9.6pp     |
| O&P Americas EBITDA | $313M | -         | -        | +25% QoQ   |
| Operating Cash Flow | $351M | -         | -        | +          |

*EBITDA margin excluding items; YoY change based on GAAP margin.

---

## Earnings Quality

- **Revenue mix was pressured by both volume and price declines**, with one-off items (e.g., $35M gain from precious metals monetization) providing some offset.
- **Margins contracted sharply YoY** (GAAP EBITDA margin down to 7.9% from 18.9%), but **sequential improvement in adjusted EBITDA margin (9.3% vs. 7.5% in Q1)** points to underlying operational leverage.
- **Cost structure improvements were evident**: a $1.1B cash improvement plan, $200M in fixed cost reductions, and strategic asset sales (notably in Europe) are beginning to support profitability, even as topline remains under pressure.

---

## Management Commentary & Guidance

- **Management’s tone was cautiously optimistic**, emphasizing sequential improvements in O&P Americas and a turnaround in operating cash flow.
- **Guidance for Q3 FY2025**: O&P Americas utilization at 85%, full-year CapEx of $1.7B, and an 80% cash conversion target. Dividend remains at $1.37/share, with continued focus on margin improvement and portfolio optimization.
- **Strategic priorities** include regulatory exits in Europe, cash generation, and investment in chemical recycling and low-carbon technologies. Share buybacks are paused to prioritize liquidity and credit ratings.

---

## Key Risks

- **Macroeconomic volatility** and **prolonged industry cyclicality** could further pressure demand and pricing.
- **Feedstock price volatility** and **regulatory headwinds in Europe** remain significant risks.
- **Execution risk** in delivering on cost-saving and cash flow targets, especially amid asset sales and restructuring.

---

## Expected Market Reaction

- **Market response is likely to be muted to moderately positive**: While headline misses may weigh on sentiment, investors may take comfort in the sequential EBITDA improvement, strong cost discipline, and liquidity focus.
- **Analysts may highlight the hidden operational recovery** and robust working capital management as underappreciated positives, potentially setting a floor for the stock.

---

## Final Takeaway

- **Q2 FY2025 was a fragile but improving quarter for LyondellBasell**: Headline results disappointed, but underlying operational trends and cost discipline are emerging as strengths.
- **The market may be underpricing the sequential margin recovery and cash generation potential**, especially as working capital release and asset sales progress in H2 FY2025.
- **Upcoming catalysts**: Watch for further margin improvement in O&P Americas, successful execution of asset sales, and updates on low-carbon technology investments as key drivers for the next two quarters.

LyondellBasell (LYB): Sequential Margin Recovery Emerges

LyondellBasell is showing early signs of margin stabilization and operational improvement, with cost discipline and portfolio transformation likely underappreciated by the market ahead of Q2 2025 earnings.

# LyondellBasell Q2 2025 Earnings Preview: Margin Stabilization, Cost Discipline, and the Underappreciated Portfolio Pivot

## Executive Summary: Cautious Optimism with Margin Upside Potential

We hold a **Neutral-to-Bullish** outlook for LyondellBasell (LYB) heading into Q2 2025. While Q1 revenue declined **7.6% YoY to $7.68B** and adjusted EBITDA margin compressed by **410 bps YoY to 7.5%**, we expect stabilization in Q2, driven by **easing U.S. feedstock costs** and a **seasonal rebound in demand**. Management’s proactive cost-control measures and a focus on portfolio transformation are likely underappreciated by the market. However, persistent working capital pressures and input cost volatility remain key risks. **The market may be underestimating the near-term margin improvement potential from both cost actions and a more favorable product mix.**

## Recent Trends Signal What’s Next: Revenue and Margin Trajectory

LYB’s last two quarters highlight a bottoming in revenue and margin pressure, with early signs of stabilization:

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q2 2024      | 8.12         | 17.2             | 10.1                 | 6.8           | 2.45    |
| Q3 2024      | 8.05         | 16.8             | 9.7                  | 6.5           | 2.38    |
| Q4 2024      | 7.89         | 15.9             | 8.6                  | 5.9           | 2.12    |
| Q1 2025      | 7.68         | 14.8             | 7.5                  | 5.1           | 1.85    |

**Key trend:** Revenue has declined sequentially, but the rate of margin compression is slowing. Q1’s **85% plant utilization in the Americas** and a **12% QoQ increase in polypropylene volumes** suggest a base for recovery. We expect Q2 revenue to stabilize or modestly rebound, with margins flat to slightly higher as cost pressures ease.

## Management’s Forward Tone and Positioning: Cautious but Constructive

Management’s Q1 2025 commentary reflects a shift from defensive to cautiously constructive:

- “We’re taking sensible measures to navigate a volatile market.” (Q1 2025 Earnings Call)
- “Easing U.S. feedstock costs and improved oxyfuels margins are expected to support results next quarter.” (Q1 2025 Earnings Call)

Compared to prior quarters, where the tone was more defensive and focused on macro headwinds, the current messaging emphasizes **cost discipline** and **early signs of demand normalization**. The explicit mention of “portfolio transformation” and “cost actions” signals a more proactive approach to margin management.

## KPI Trends & Upcoming Quarter Drivers: Utilization, Volumes, and Working Capital

The following KPIs will be most relevant for Q2 2025 results:

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Americas Utilization (%)   | 83      | 84      | 85      | +2 pts     | +1 pt      |
| Polypropylene Volumes (kt) | 1,120   | 1,140   | 1,277   | +14%       | +12%       |
| Working Capital Usage ($M) | (420)   | (510)   | (716)   | -70%       | -40%       |

- **Utilization and Volumes:** The **85% utilization rate** and **double-digit volume growth** in polypropylene underpin expectations for improved production efficiency and revenue stabilization.
- **Working Capital:** The **$716M outflow** in Q1 is a headwind, but management’s focus on “financial and operational discipline” could moderate this impact in Q2, supporting free cash flow and margin recovery.

## Missed by the Street: Portfolio Transformation and Cost Actions

Two overlooked signals:

1. **Portfolio Transformation:** Management’s reference to “accelerated portfolio transformation” (Q1 2025 Earnings Call) suggests near-term costs but positions LYB for medium-term margin expansion. This is not fully reflected in consensus models.
2. **Cost Actions:** The phrase “taking sensible measures” implies ongoing cost initiatives that could deliver upside surprise on margins or EPS if execution is strong.

## Scenarios for the Upcoming Quarter: Bull, Base, and Bear Cases

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                              |
|----------|--------------|---------|----------------------|--------------------------------------------------------------|
| Bull     | 7.90–8.00    | 2.00–2.10 | 8.0–8.5              | Seasonal demand rebound, continued feedstock cost relief, strong execution on cost actions |
| Base     | 7.65–7.80    | 1.80–1.95 | 7.5–8.0              | Stable operating rates, neutral cost environment, steady working capital |
| Bear     | 7.50–7.65    | 1.60–1.75 | 7.0–7.5              | Input cost spike, persistent working capital drag, weak demand in Europe |

**Most likely scenario:** The **Base case** is most probable, given current evidence of stabilization in utilization and cost environment, but with lingering working capital and demand risks.

## Appendix – Data Tables & Management Quotes

### Quarterly Financial Trends

| Quarter      | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q2 2024      | 8.12         | 2.45    | 17.2             | 10.1                 |
| Q3 2024      | 8.05         | 2.38    | 16.8             | 9.7                  |
| Q4 2024      | 7.89         | 2.12    | 15.9             | 8.6                  |
| Q1 2025      | 7.68         | 1.85    | 14.8             | 7.5                  |

### KPI Movement Table

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Americas Utilization (%)   | 83      | 84      | 85      | +2 pts     | +1 pt      |
| Polypropylene Volumes (kt) | 1,120   | 1,140   | 1,277   | +14%       | +12%       |
| Working Capital Usage ($M) | (420)   | (510)   | (716)   | -70%       | -40%       |

### Key Management Quotes

1. **“We’re taking sensible measures to navigate a volatile market.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Ongoing cost discipline and risk management.*

2. **“Easing U.S. feedstock costs and improved oxyfuels margins are expected to support results next quarter.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Margin recovery is a near-term focus.*

3. **“We remain committed to returning capital to shareholders, as evidenced by our recent $1.37/share dividend.”**  
   Source: Dividend Announcement  
   *Interpretation: Confidence in liquidity and cash flow stability.*

4. **“Accelerated portfolio transformation will position us for long-term competitiveness.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Near-term costs, but medium-term margin upside.*

5. **“We are seeing early signs of normalization in demand, particularly in the Americas.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Potential for volume-driven revenue stabilization.*

6. **“Working capital usage was elevated this quarter, but we expect improvement as inventory levels normalize.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Temporary headwind, with possible Q2 relief.*

7. **“We continue to execute on cost actions to offset macro headwinds.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Ongoing margin protection efforts.*

---

**Bottom line:** LyondellBasell’s Q2 2025 setup is defined by margin stabilization, disciplined cost management, and a quietly accelerating portfolio shift. While risks remain, the company is positioned for a modest rebound if execution aligns with management’s forward guidance.

LYB Q2 2025: Margin Recovery and Portfolio Shift