KRONOS WORLDWIDE REPORTS THIRD QUARTER 2018 RESULTS
November 07 2018 - 4:15PM
DALLAS, TEXAS.November 7,
2018.Kronos Worldwide, Inc. (NYSE:KRO) today reported net income of
$32.6 million, or $.28 per share, in the third quarter of 2018
compared to net income of $73.8 million, or $.64 per share, in the
third quarter of 2017. For the first nine months of 2018,
Kronos Worldwide reported net income of $181.0 million, or $1.56
per share, compared to net income of $307.1 million, or $2.65 per
share in the first nine months of 2017. Income from
operations was $58.1 million in the third quarter of 2018 as
compared to $96.1 million in the third quarter of 2017, and $285.5
million in the first nine months of 2018 as compared to $226.8
million in the first nine months of 2017. Our income from
operations was lower in the third quarter of 2018 compared to the
same period in 2017 as the favorable impact of higher average
selling prices was more than offset by the unfavorable impact of
lower sales and production volumes and higher raw materials and
other production costs. Our income from operations was higher
in the first nine months of 2018 compared to the same period in
2017 as the favorable impact of higher average selling prices more
than offset the unfavorable impact of lower sales and production
volumes and higher raw materials and other production costs.
We reported lower net income in the third quarter of 2018 as
compared to the third quarter of 2017 primarily due to lower income
from operations. We reported lower net income in the first
nine months of 2018 compared to the same period in 2017 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 associated with our German and Belgian
operations.
Net sales of $410.3 million in the
third quarter of 2018 were $54.2 million, or 12%, lower than in the
third quarter of 2017. Net sales of $1.3 billion in the first
nine months of 2018 were $36.8 million, or 3%, higher than in the
first nine months of 2017. Net sales decreased in the third
quarter of 2018 and increased in the first nine months of 2018
compared to the same periods in 2017 due to the net effects of
higher average TiO2 selling
prices and lower sales volumes. The Company's average
TiO2 selling
prices were 9% higher in the third quarter of 2018 as compared to
the third quarter of 2017 and were 18% higher in the first nine
months of 2018 as compared to the same prior year period. Our
average selling prices at the end of the third quarter of 2018 were
2% lower than at the end of the second quarter of 2018, and were 1%
higher than at the end of 2017. Higher prices in the European and
North American markets were partially offset by lower prices in the
Latin American and export markets (attributable to changes in
customer mix) at the end of the third quarter of 2018 as compared
to the end of 2017. TiO2 sales volumes
in the third quarter of 2018 were 19% lower as compared to the
record third quarter sales volumes of 2017 primarily due to lower
sales in the European and export markets reflecting the effects of
reduced shipments as customer inventory levels returned to more
normal levels. The sales volumes in the first nine months of 2018
were 15% lower than the same period in 2017 primarily due to a
combination of factors including (i) 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; (ii) 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); (iii) product availability
in the second quarter; and (iv) customer inventory level changes in
the second and third quarters as discussed above.
Fluctuations in currency exchange rates (primarily the euro) did
not materially affect net sales comparisons in the third quarter
but increased net sales by approximately $53 million in the first
nine 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 change in net sales.
The Company's TiO2
segment profit (see description of non-GAAP information below) in
the third quarter of 2018 was $61.7 million as compared to $99.5
million in the third quarter of 2017. For the nine months
ended, the Company's segment profit was $297.7 million as compared
to $238.0 million in the first nine months of 2017. Segment
profit decreased in the third quarter and increased in the
year-to-date period of 2018 compared to the 2017 periods primarily
due to the net effect of higher average TiO2 selling
prices, lower sales and production volumes and higher costs for
certain raw materials and other production costs. Kronos'
TiO2 production
volumes were 7% lower in the third quarter and 6% lower in the
first nine months of 2018 as compared to the same periods in
2017. Our production facilities operated at 95% of practical
capacity in the first nine months of 2018 (95%, 97% and 92% in the
first, second and third quarters of 2018, respectively) compared to
full practical capacity utilization rates for the comparable
periods 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 maintenance activities at
certain facilities in 2018, and 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 $7 million in the third
quarter of 2018 and by approximately $26 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 third quarter of 2018 was $64.0 million compared to EBITDA
of $102.5 million in the third quarter of 2017. For the first
nine months of 2018, the Company's EBITDA was $308.1 million
compared to $245.4 million in the first nine months of 2017.
In September 2017, we voluntarily
prepaid and terminated our term loan indebtedness using a portion
of the proceeds from the September 2017 issuance by Kronos
International, Inc., our wholly-owned subsidiary, of €400 million
principal amount of 3.75% Senior Secured Notes due September
2025. The Company's results in the third quarter of 2017
include a pre-tax charge of $7.1 million ($4.6 million, or $.04 per
share, net of income tax benefit) related to such prepayment.
The Company's income tax benefit
in the first nine months of 2017 includes a non-cash deferred
income tax benefit of $170.4 million ($1.47 per share) as a result
of a net decrease in our deferred income tax asset valuation
allowance associated with our German and Belgian operations ($7.8
million or $.07 per share recognized in the third quarter of 2017)
and a third quarter aggregate income tax benefit of $11.3 million
($.10 per share) related to the execution and finalization of an
Advance Pricing Agreement between Canada and Germany.
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 |
|
Nine months ended |
|
September 30, |
|
September
30, |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
|
Net sales |
$ 464.5 |
|
$
410.3 |
|
$ 1,275.7 |
|
$
1,312.5 |
Cost of sales |
309.5 |
|
291.2 |
|
882.3 |
|
846.8 |
|
|
|
|
|
|
|
|
Gross margin |
155.0 |
|
119.1 |
|
393.4 |
|
465.7 |
|
|
|
|
|
|
|
|
Selling, general and administrative expense |
51.3 |
|
57.3 |
|
147.6 |
|
173.7 |
Other operating income (expense): |
|
|
|
|
|
|
|
Currency transactions, net |
(4.3) |
|
(.6) |
|
(8.0) |
|
4.2 |
Other income (expense), net |
(.1) |
|
.2 |
|
(.1) |
|
.4 |
Corporate expense |
(3.2) |
|
(3.3) |
|
(10.9) |
|
(11.1) |
|
|
|
|
|
|
|
|
Income from operations |
96.1 |
|
58.1 |
|
226.8 |
|
285.5 |
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Trade interest income |
.2 |
|
.3 |
|
.3 |
|
1.1 |
Other interest and dividend income |
.2 |
|
1.2 |
|
.4 |
|
2.6 |
Marketable equity securities |
- |
|
(4.3) |
|
- |
|
(6.7) |
Other components of net periodic
pension
and OPEB cost |
(4.5) |
|
(3.7) |
|
(12.8) |
|
(11.3) |
Loss on prepayment of debt, net |
(7.1) |
|
- |
|
(7.1) |
|
- |
Interest expense |
(5.0) |
|
(4.9) |
|
(14.5) |
|
(14.7) |
|
|
|
|
|
|
|
|
Income before income taxes |
79.9 |
|
46.7 |
|
193.1 |
|
256.5 |
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
6.1 |
|
14.1 |
|
(114.0) |
|
75.5 |
|
|
|
|
|
|
|
|
Net income |
$ 73.8 |
|
$ 32.6 |
|
$ 307.1 |
|
$ 181.0 |
|
|
|
|
|
|
|
|
Net income per basic and diluted share |
$ .64 |
|
$ .28 |
|
$ 2.65 |
|
$ 1.56 |
|
|
|
|
|
|
|
|
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 |
150 |
|
123 |
|
450 |
|
385 |
Production volumes |
141 |
|
131 |
|
427 |
|
400 |
KRONOS WORLDWIDE, INC. |
RECONCILIATION
OF INCOME FROM |
OPERATIONS TO
SEGMENT PROFIT |
(In
millions) |
(Unaudited) |
|
Three months
ended |
|
Nine months ended |
|
September
30, |
|
September
30, |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
|
|
|
|
|
Income from operations |
$ 96.1 |
|
$
58.1 |
|
$ 226.8 |
|
$
285.5 |
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
Trade interest income |
.2 |
|
.3 |
|
.3 |
|
1.1 |
Corporate expense |
3.2 |
|
3.3 |
|
10.9 |
|
11.1 |
|
|
|
|
|
|
|
|
Segment profit |
$ 99.5 |
|
$ 61.7 |
|
$ 238.0 |
|
$ 297.7 |
|
|
|
|
|
|
|
|
|
RECONCILIATION
OF NET INCOME TO EBITDA |
(In
millions) |
(Unaudited) |
|
Three months
ended |
|
Nine months ended |
|
September
30, |
|
September
30, |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
|
|
|
|
|
Net income |
$ 73.8 |
|
$
32.6 |
|
$ 307.1 |
|
$
181.0 |
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
Depreciation and amortization expense |
10.5 |
|
12.4 |
|
30.7 |
|
36.9 |
Interest expense (includes loss
on
prepayment of debt) |
12.1 |
|
4.9 |
|
21.6 |
|
14.7 |
Income tax expense (benefit) |
6.1 |
|
14.1 |
|
(114.0) |
|
75.5 |
|
|
|
|
|
|
|
|
EBITDA |
$ 102.5 |
|
$ 64.0 |
|
$ 245.4 |
|
$ 308.1 |
|
|
|
|
|
|
|
|
IMPACT OF PERCENTAGE CHANGE IN NET
SALES |
(Unaudited) |
|
|
Three months
ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2018 vs.
2017 |
|
2018 vs.
2017 |
|
|
|
|
|
Percentage change in net sales: |
|
|
|
|
TiO2 product
pricing |
|
|
9 |
% |
|
|
18 |
% |
TiO2 sales
volumes |
|
|
(19) |
|
|
|
(15) |
|
TiO2 product
mix/other |
|
|
(2) |
|
|
|
(4) |
|
Changes in currency exchange rates |
|
|
- |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(12) |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
Source: Kronos Worldwide, Inc.
Contact: Janet Keckeisen, Vice President,
Corporate Strategy and Investor Relations, (972) 233-1700
This
announcement is distributed by West Corporation on behalf of West
Corporation 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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