KRONOS WORLDWIDE REPORTS SECOND QUARTER 2018 RESULTS
August 07 2018 - 4:16PM
DALLAS, TEXAS.August 7, 2018. Kronos
Worldwide, Inc. (NYSE:KRO) today reported net income of $77.7
million, or $.67 per share, in the second quarter of 2018
compared to net income of $196.5 million, or $1.70 per share, in
the second quarter of 2017. For the first six months of 2018,
Kronos Worldwide reported net income of $148.4 million, or $1.28
per share, compared to net income of $233.3 million, or $2.01 per
share in the first six months of 2017. Income from operations
was $119.9 million in the second quarter of 2018 as compared to
$74.3 million in the second quarter of 2017, and was $227.4 million
in the first six months of 2018 as compared to $130.7 million in
the first six months of 2017. Our income from operations
improved in the 2018 periods due to the net impact of higher
average selling prices, lower sales and production volumes and
higher raw materials and other production costs as discussed
below. We reported lower net income in the 2018 periods as
compared to the 2017 periods primarily due to the recognition in
2017 of a non-cash deferred income tax benefit as a result of a net
decrease in our deferred income tax asset valuation allowance
related to our German and Belgian operations.
Net sales of $471.8 million in the second quarter of 2018 were
$30.4 million, or 7%, higher than in the second quarter of
2017. Net sales of $902.2 million in the first six months of
2018 were $91.0 million, or 11%, higher than in the first six
months of 2017. Net sales increased in 2018 due to higher
average TiO2 selling
prices partially offset by lower sales volumes. The Company's
average TiO2 selling
prices were 20% higher in the second quarter of 2018 as compared to
the second quarter of 2017 and were 23% higher in the first six
months of 2018 as compared to the same prior year period. Our
average TiO2 selling
prices at the end of the second quarter of 2018 were 4% higher than
at the end of 2017, with most of such increase occurring in the
first quarter. Higher prices in the European, North American
and export markets were partially offset by lower prices in Latin
America (attributable to changes in customer mix).
TiO2 sales volumes
in the second quarter of 2018 were 12% lower as compared to the
record second quarter sales volumes of 2017 primarily due to lower
sales in the European and export markets reflecting the effects of
product availability issues during the quarter as well as reduced
shipments as customer inventory levels returned to more normal
levels, especially in European and export markets, partially offset
by higher sales in the North American market. The sales
volumes in the first six months of 2018 were 13% lower than the
same period in 2017 primarily due to lower sales in all major
markets resulting from a controlled ramp-up in January 2018 as we
brought the second phase of our new global enterprise resource
planning system online, and inventory management to assure adequate
supply to our customers during the spring and summer necessitated
by the lower production volumes in the first three months of the
year (as discussed below), as well as the impact of product
availability and customer inventory level changes in the second
quarter discussed above. Fluctuations in currency exchange
rates (primarily the euro) also affected net sales comparisons,
increasing net sales by approximately $22 million in the second
quarter of 2018 and approximately $53 million in the first six
months of 2018 as compared to the same periods in 2017. The
table at the end of this press release shows how each of these
items impacted the overall increase in net sales.
The Company's TiO2 segment
profit (see description of non-GAAP information below) in the
second quarter of 2018 was $124.2 million as compared to $77.9
million in the second quarter of 2017. For the year-to-date
period, the Company's segment profit was $236.0 million as compared
to $138.5 million in the first six months of 2017. Segment
profit increased in the 2018 periods primarily due to higher
average TiO2 selling
prices partially offset by lower sales and production volumes and
higher costs for certain raw materials and other production
costs. Kronos' TiO2 production
volumes were 4% lower in the second quarter and 6% lower in the
first six months of 2018 as compared to the same periods in
2017. Our production facilities operated at 96% of practical
capacity in 2018 (95% and 97% in the first and second quarters of
2018, respectively) compared to full practical capacity utilization
rates in 2017. The decrease in TiO2 production
volumes in the 2018 periods compared to the production volumes in
the 2017 periods was primarily due to the timing of scheduled
maintenance at certain facilities in 2018 as well as the
implementation of a productivity-enhancing improvement project at
our Belgian facility in the first quarter of 2018.
Fluctuations in currency exchange rates also affected segment
profit comparisons, which increased segment profit by approximately
$18 million in the second quarter of 2018 and by approximately $19
million in the year-to-date 2018 period as compared to the same
periods in 2017.
The Company's net income before
income taxes, interest expense and depreciation and amortization
expense ("EBITDA") (see description of non-GAAP information below)
in the second quarter of 2018 was $127.3 million compared to EBITDA
of $80.3 million in the second quarter of 2017. For the first
six months of 2018, the Company's EBITDA was $244.1 million
compared to $142.9 million in the first six months of 2017.
The Company's income tax benefit in
the first six months of 2017 includes a non-cash deferred income
tax benefit of $162.6 million ($1.40 per share) as a result of a
net decrease in our deferred income tax asset valuation allowance
associated with our German and Belgian operations ($157.6 million
or $1.36 per share recognized in the second quarter of
2017).
The statements in this release
relating to matters that are not historical facts are
forward-looking statements that represent management's beliefs and
assumptions based on currently available information.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it cannot give any
assurances that these expectations will prove to be correct.
Such statements by their nature involve substantial risks and
uncertainties that could significantly impact expected results, and
actual future results could differ materially from those described
in such forward-looking statements. While it is not possible
to identify all factors, the Company continues to face many risks
and uncertainties. The factors that could cause actual future
results to differ materially include, but are not limited to, the
following:
-
Future supply and demand for our products
-
The extent of the dependence of certain of our
businesses on certain market sectors
-
The cyclicality of our business
-
Customer and producer inventory levels
-
Unexpected or earlier-than-expected industry
capacity expansion
-
Changes in raw material and other operating
costs (such as energy and ore costs)
-
Changes in the availability of raw materials
(such as ore)
-
General global economic and political conditions
(such as changes in the level of gross domestic product in various
regions of the world and the impact of such changes on demand for
TiO2)
-
Competitive products and substitute
products
-
Customer and competitor strategies
-
Potential consolidation of our competitors
-
Potential consolidation of our customers
-
The impact of pricing and production
decisions
-
Competitive technology positions
-
Potential difficulties in upgrading or
implementing new accounting and manufacturing software systems
(such as our new enterprise resource planning system)
-
The introduction of trade barriers
-
Possible disruption of our business, or
increases in our cost of doing business, resulting from terrorist
activities or global conflicts
-
Fluctuations in currency exchange rates (such as
changes in the exchange rate between the U.S. dollar and each of
the euro, the Norwegian krone and the Canadian dollar), or possible
disruptions to our business resulting from potential instability
resulting from uncertainties associated with the euro or other
currencies
-
Operating interruptions (including, but not
limited to, labor disputes, leaks, natural disasters, fires,
explosions, unscheduled or unplanned downtime, transportation
interruptions and cyber attacks)
-
Our ability to renew or refinance credit
facilities
-
Our ability to maintain sufficient
liquidity
-
The ultimate outcome of income tax audits, tax
settlement initiatives or other tax matters, including future tax
reform
-
Our ability to utilize income tax attributes,
the benefits of which may or may not have been recognized under the
more-likely-than-not recognition criteria
-
Environmental matters (such as those requiring
compliance with emission and discharge standards for existing and
new facilities)
-
Government laws and regulations and possible
changes therein
-
The ultimate resolution of pending
litigation
-
Possible future litigation.
Should one or more of these risks
materialize (or the consequences of such a development worsen), or
should the underlying assumptions prove incorrect, actual results
could differ materially from those forecasted or expected.
The Company disclaims any intention or obligation to update or
revise any forward-looking statement whether as a result of changes
in information, future events or otherwise.
In an effort to provide investors
with additional information regarding the Company's results of
operations as determined by accounting principles generally
accepted in the United States of America (GAAP), the Company has
disclosed certain non-GAAP information, which the Company believes
provides useful information to investors:
-
The Company discloses segment profit, which is
used by the Company's management to assess the performance of the
Company's TiO2
operations. The Company believes disclosure of segment profit
provides useful information to investors because it allows
investors to analyze the performance of the Company's
TiO2 operations in
the same way that the Company's management assesses
performance. The Company defines segment profit as income
before income taxes, interest expense and certain general corporate
items. Corporate items excluded from the determination of
segment profit include corporate expense and interest income not
attributable to the Company's TiO2 operations;
and
-
The Company discloses EBITDA, which is also used
by the Company's management to assess the performance of the
Company's TiO2
operations. The Company believes disclosure of EBITDA
provides useful information to investors because it allows
investors to analyze the performance of the Company's
TiO2 operations in
the same way that the Company's management assesses
performance. The Company defines EBITDA as net income before
income taxes, interest expense and depreciation and amortization
expense.
Kronos Worldwide, Inc. is a major international
producer of titanium dioxide products.
KRONOS WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share and metric ton data)
(Unaudited)
|
Three months
ended |
|
Six months ended |
|
June
30, |
|
June
30, |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
|
Net sales |
$ 441.4 |
|
$
471.8 |
|
$ 811.2 |
|
$
902.2 |
Cost of sales |
309.0 |
|
300.0 |
|
572.8 |
|
555.6 |
|
|
|
|
|
|
|
|
Gross margin |
132.4 |
|
171.8 |
|
238.4 |
|
346.6 |
|
|
|
|
|
|
|
|
Selling, general and administrative
expense |
51.0 |
|
58.0 |
|
96.3 |
|
116.4 |
Other operating income
(expense): |
|
|
|
|
|
|
|
Currency transactions,
net |
(3.5) |
|
9.8 |
|
(3.7) |
|
4.8 |
Other income (expense),
net |
(.1) |
|
.2 |
|
- |
|
.2 |
Corporate expense |
(3.5) |
|
(3.9) |
|
(7.7) |
|
(7.8) |
|
|
|
|
|
|
|
|
Income from operations |
74.3 |
|
119.9 |
|
130.7 |
|
227.4 |
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Trade interest income |
.1 |
|
.4 |
|
.1 |
|
.8 |
Other interest and dividend
income |
- |
|
.8 |
|
.2 |
|
1.4 |
Marketable equity
securities |
- |
|
(2.2) |
|
- |
|
(2.4) |
Other components of net
periodic pension
and OPEB cost |
(4.2) |
|
(3.8) |
|
(8.3) |
|
(7.6) |
Interest expense |
(4.8) |
|
(5.0) |
|
(9.5) |
|
(9.8) |
|
|
|
|
|
|
|
|
Income before income
taxes |
65.4 |
|
110.1 |
|
113.2 |
|
209.8 |
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
(131.1) |
|
32.4 |
|
(120.1) |
|
61.4 |
|
|
|
|
|
|
|
|
Net income |
$ 196.5 |
|
$ 77.7 |
|
$ 233.3 |
|
$ 148.4 |
|
|
|
|
|
|
|
|
Net income per basic and diluted
share |
$ 1.70 |
|
$ .67 |
|
$ 2.01 |
|
$ 1.28 |
|
|
|
|
|
|
|
|
Weighted-average shares used in
the |
|
|
|
|
|
|
|
calculation of net income per
share |
115.9 |
|
115.9 |
|
115.9 |
|
115.9 |
|
|
|
|
|
|
|
|
TiO2 data - metric
tons in thousands: |
|
|
|
|
|
|
|
Sales volumes |
157 |
|
137 |
|
300 |
|
262 |
Production volumes |
141 |
|
136 |
|
286 |
|
269 |
KRONOS WORLDWIDE, INC.
RECONCILIATION OF INCOME FROM
OPERATIONS TO SEGMENT PROFIT
(In millions)
(Unaudited)
|
Three months
ended |
|
Six months ended |
|
June
30, |
|
June
30, |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
|
|
|
|
|
Income from operations |
$ 74.3 |
|
$
119.9 |
|
$130.7 |
|
$227.4 |
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
Trade interest income |
.1 |
|
.4 |
|
.1 |
|
.8 |
Corporate expense |
3.5 |
|
3.9 |
|
7.7 |
|
7.8 |
|
|
|
|
|
|
|
|
Segment profit |
$ 77.9 |
|
$ 124.2 |
|
$138.5 |
|
$236.0 |
|
|
|
|
|
|
|
|
RECONCILIATION OF NET INCOME TO EBITDA
(In millions)
(Unaudited)
|
Three months
ended |
|
Six months ended |
|
June
30, |
|
June
30, |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
|
|
|
|
|
Net income |
$ 196.5 |
|
$
77.7 |
|
$233.3 |
|
$148.4 |
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
Depreciation and amortization expense |
10.1 |
|
12.2 |
|
20.2 |
|
24.5 |
Interest expense |
4.8 |
|
5.0 |
|
9.5 |
|
9.8 |
Income tax expense (benefit) |
(131.1) |
|
32.4 |
|
(120.1) |
|
61.4 |
|
|
|
|
|
|
|
|
EBITDA |
$ 80.3 |
|
$ 127.3 |
|
$142.9 |
|
$244.1 |
|
|
|
|
|
|
|
|
IMPACT OF PERCENTAGE CHANGE IN NET SALES
(Unaudited)
|
|
Three months
ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2018 vs.
2017 |
|
2018 vs.
2017 |
|
|
|
|
|
Percentage change in net sales: |
|
|
|
|
TiO2 product
pricing |
|
|
20 |
% |
|
|
23 |
% |
TiO2 sales
volumes |
|
|
(12) |
|
|
|
(13) |
|
TiO2 product
mix/other |
|
|
(6) |
|
|
|
(5) |
|
Changes in currency exchange rates |
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
Source: Kronos Worldwide, Inc.
Contact: Janet G. Keckeisen, Vice President, Corporate
Strategy and Investor Relations, (972) 233-1700
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Kronos Worldwide via Globenewswire
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