Arkema, the French specialty chemicals powerhouse, recently released its Q1 2024 earnings transcript OTCPK:ARKAF, packed with the usual data points and executive commentary. But hidden within those lines lies a signal, an almost imperceptible tremor, that hints at something much bigger brewing beneath the surface.

While analysts focused on the robust adhesive margins, the Dow acquisition, and the continued pressure on PVDF pricing, a subtle shift in Thierry Le Hénaff's, Arkema's Chairman and CEO, language regarding volume recovery reveals a quiet confidence, a sense of anticipation rarely seen in the face of a sluggish economic landscape.

This isn't just about the anticipated second-half contribution of major projects like the bio-based polyamide 11 unit in Singapore and the Nutrien plant. There's a deeper current, a building wave of optimism that suggests Arkema is poised to ride a volume surge far beyond the impact of its internal initiatives.

Consider Le Hénaff's statements: He acknowledges the 'continuity' of the macroeconomic environment, with 'no clear pickup in volumes.' However, he quickly pivots, adding that there are 'small improvements yet to be confirmed in activity levels.' He then injects a spark of hope, noting, 'Hopefully, things will start to move in the right direction at some point at the end of the quarter or during the second part of the year.'

This shift, from acknowledging a sluggish present to anticipating a dynamic future, is further reinforced when discussing the Q2 outlook. Le Hénaff foresees an EBITDA 'slightly above last year's level,' a positive trend that he attributes to the 'contribution of PM and the continued positive dynamic of adhesives.' While these factors undoubtedly play a role, the emphasis on 'positive trend' hints at a broader momentum, a volume lift that transcends the impact of specific projects.

The real revelation lies in Le Hénaff's response to questions about the full-year guidance. When pressed to tighten the €1.5 billion to €1.7 billion EBITDA range, he holds firm, emphasizing the 'lack of visibility' in the economy.

This is where the subtle signal becomes a roar. Le Hénaff is essentially saying, 'We're confident in achieving at least €1.5 billion, even in a flat macroeconomic environment. But we're leaving the top end open because the potential for a significant volume recovery is real, and we're ready to capitalize on it.'

Here's where the hypothesis comes in: Arkema's guidance implies a €330 million EBITDA for Q4, assuming the lower end of their range. However, consider this: In Q3 2023, when volumes were at their lowest point, Arkema achieved an EBITDA of €386 million.

If we assume a mere 5% volume growth in Q4 2024, coupled with the contribution from the major projects and the typical Q4 seasonality, Arkema's Q4 EBITDA could easily surpass €450 million, propelling the full-year figure well beyond €1.6 billion.

This potential volume surge is further supported by a key data point buried within the transcript: Marie-José Donsion, Arkema's CFO, reveals that the company's working capital ratio remains 'broadly unchanged versus last year.' This suggests that Arkema isn't aggressively destocking, a clear indication that they anticipate a need for higher inventory levels in the coming quarters to meet rising demand.

Projected EBITDA Growth

The following chart illustrates Arkema's projected EBITDA growth, including the potential impact of a volume resurgence in Q4 2024.

It's a daring move to leave the upper end of the guidance range so open, especially amidst geopolitical uncertainties. But Le Hénaff's confidence isn't bravado. It's a calculated bet, a recognition that the tide is turning, and Arkema, with its unique portfolio and strategic positioning, is poised to ride the wave.

"Fun Fact: Arkema's Rilsan PA11, a bio-based polyamide derived from castor beans, is used in everything from high-performance sportswear to automotive fuel lines, showcasing the company's commitment to sustainable and innovative solutions."

Analysts may be fixated on the immediate data points, but those who delve deeper, who listen closely to the subtle shifts in language, will recognize the hidden signal: Arkema is anticipating a volume resurgence, a powerful wave that could propel this specialty chemicals giant to new heights.