Kronos Worldwide Reports Second Quarter 2020 Results
August 05 2020 - 4:20PM
Kronos Worldwide, Inc. (NYSE:KRO) today reported net income of
$18.6 million, or $.16 per share, in the second quarter of 2020
compared to net income of $29.5 million, or $.25 per share, in the
second quarter of 2019. For the first six months of 2020,
Kronos Worldwide reported net income of $45.6 million, or $.39 per
share, compared to net income of $59.8 million, or $.52 per share
in the first six months of 2019. We reported lower net income in
the 2020 periods primarily due to lower income from operations
resulting from the effects of lower sales volumes, lower average
TiO2 selling prices and higher raw materials and other production
costs, as discussed below. Our results of operations for the
quarter ended June 30, 2020 were significantly impacted by the
COVID-19 pandemic, specifically through reduced demand for certain
of our products resulting from the rapid contraction of vast areas
of the global economy. Comparability of our results was also
impacted by the effects of changes in currency exchange rates, also
discussed below.
Net sales of $386.0 million in the second
quarter of 2020 were $98.5 million, or 20%, lower than in the
second quarter of 2019. Net sales of $807.0 million in the
first six months of 2020 were $114.0 million, or 12%, lower than in
the first six months of 2019. Net sales decreased in the 2020
periods primarily due to lower sales volumes and lower average TiO2
selling prices. TiO2 sales volumes were 22% lower in the
second quarter of 2020 as compared to the second quarter of 2019
and 14% lower in the first six months of 2020 as compared to the
same prior year period due to lower sales volumes in all major
markets primarily due to demand contraction related to the COVID-19
pandemic. Our average TiO2 selling prices were 1% lower in the
second quarter and first six months of 2020 as compared to the same
periods in 2019. Our average TiO2 selling prices at the end
of the second quarter of 2020 were comparable to the end of the
first quarter of 2020. Fluctuations in currency exchange
rates (primarily the euro) also affected net sales comparisons,
decreasing net sales by approximately $4 million in the second
quarter of 2020 and approximately $11 million in the first six
months of 2020 as compared to the same periods in 2019. The
table at the end of this press release shows how each of these
items impacted net sales.
Our TiO2 segment profit (see description of
non-GAAP information below) in the second quarter of 2020 was $37.0
million as compared to $51.1 million in the second quarter of 2019.
For the year-to-date period, the Company’s segment profit was $84.2
million as compared to $104.4 million in the first six months of
2019. Segment profit decreased in the 2020 periods
primarily due to the unfavorable effects of lower sales volumes,
lower average TiO2 selling prices and higher raw materials and
other production costs. TiO2 production volumes were 2% lower
in the second quarter and year-to-date periods of 2020 as compared
to the same periods in 2019. We operated our production
facilities at overall average capacity utilization rates of 95% in
the first six months of 2020 (95% and 96% in the first and second
quarters of 2020, respectively) compared to 97% in 2019 (97% in the
first and second quarters of 2019). Fluctuations in currency
exchange rates also affected the year-to-date segment profit
comparison, which increased segment profit by approximately $11
million in the year-to-date 2020 period as compared to the same
period of 2019. Fluctuations in currency exchange rates had a
nominal effect on the second quarter segment profit comparison.
Our net income before interest expense, income
taxes and depreciation and amortization expense (EBITDA) (see
description of non-GAAP information below) in the second quarter of
2020 was $42.9 million compared to EBITDA of $57.5 million in the
second quarter of 2019. For the first six months of 2020, the
Company’s EBITDA was $97.8 million compared to $116.0 million in
the first six months of 2019.
Our results of operations for the second quarter
of 2020 were significantly impacted by the COVID-19 pandemic,
specifically through reduced demand for many of our products
resulting from the rapid contraction of vast areas of the global
economy. The extent of the COVID-19 impact on our future operations
will depend on the time period and degree to which the COVID-19
pandemic persists in the global economy thereby reducing customer
demand for certain of our products, including the timing and extent
to which our customers’ operations continue to be impacted, our
customers’ perception as to when consumer demand for their products
will return to pre-pandemic levels and on any future disruptions in
our operations or our suppliers’ operations, all of which are
difficult to predict.
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 we believe
that the expectations reflected in such forward-looking statements
are reasonable, we 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, we continue 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 that harm the
worldwide economy, disrupt our supply chain, increase material
costs or reduce demand or perceived demand for our TiO2 products or
impair our ability to operate our facilities (including changes in
the level of gross domestic product in various regions of the
world, natural disasters, terrorist acts, global conflicts and
public health crises such as COVID-19)
- 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 accounting
and manufacturing software systems
- The introduction of trade barriers or trade disputes
- 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 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, cyber-attacks
and public health crises such as COVID-19)
- 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
including new environmental health and safety regulations such as
those seeking to limit or classify TiO2 or its use
- 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
interest expense, income taxes 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, |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
|
|
|
|
|
Net sales |
$ |
484.5 |
|
|
$ |
386.0 |
|
|
$ |
921.0 |
|
|
$ |
807.0 |
|
Cost of sales |
|
375.0 |
|
|
|
290.2 |
|
|
|
702.2 |
|
|
|
623.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
109.5 |
|
|
|
95.8 |
|
|
|
218.8 |
|
|
|
183.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expense |
|
57.9 |
|
|
|
52.7 |
|
|
|
115.6 |
|
|
|
106.2 |
|
Other operating income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency transactions,
net |
|
(1.1 |
) |
|
|
(6.1 |
) |
|
|
(.2 |
) |
|
|
6.1 |
|
Other income, net |
|
.3 |
|
|
|
(.1 |
) |
|
|
.6 |
|
|
|
.1 |
|
Corporate expense |
|
(4.3 |
) |
|
|
(3.9 |
) |
|
|
(8.1 |
) |
|
|
(7.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
46.5 |
|
|
|
33.0 |
|
|
|
95.5 |
|
|
|
76.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade interest
income |
|
.3 |
|
|
|
.1 |
|
|
|
.8 |
|
|
|
.3 |
|
Other interest and
dividend income |
|
1.4 |
|
|
|
.1 |
|
|
|
3.0 |
|
|
|
1.1 |
|
Insurance settlement
gain |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1.5 |
|
Marketable equity
securities |
|
1.2 |
|
|
|
(.2 |
) |
|
|
1.8 |
|
|
|
(1.7 |
) |
Other components of net
periodic pension and OPEB cost |
|
(3.8 |
) |
|
|
(4.7 |
) |
|
|
(7.6 |
) |
|
|
(9.4 |
) |
Interest expense |
|
(4.7 |
) |
|
|
(4.6 |
) |
|
|
(9.5 |
) |
|
|
(9.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
40.9 |
|
|
|
23.7 |
|
|
|
84.0 |
|
|
|
59.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
11.4 |
|
|
|
5.1 |
|
|
|
24.2 |
|
|
|
13.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
29.5 |
|
|
$ |
18.6 |
|
|
$ |
59.8 |
|
|
$ |
45.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per basic and
diluted share |
$ |
.25 |
|
|
$ |
.16 |
|
|
$ |
.52 |
|
|
$ |
.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used
in the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
calculation of net
income per share |
|
115.9 |
|
|
115.5 |
|
|
|
115.9 |
|
|
115.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TiO2 data - metric tons in
thousands: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volumes |
|
158 |
|
|
124 |
|
|
|
301 |
|
|
260 |
|
Production volumes |
|
136 |
|
|
133 |
|
|
|
270 |
|
|
265 |
|
KRONOS WORLDWIDE, INC.RECONCILIATION OF INCOME
FROM OPERATIONS TO SEGMENT PROFIT(In millions) (Unaudited)
|
Three months ended |
|
|
Six months ended |
|
|
June 30, |
|
|
June 30, |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
$ |
46.5 |
|
|
$ |
33.0 |
|
|
$ |
95.5 |
|
|
$ |
76.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade interest
income |
|
.3 |
|
|
|
.1 |
|
|
|
.8 |
|
|
|
.3 |
|
Corporate expense |
|
4.3 |
|
|
|
3.9 |
|
|
|
8.1 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
$ |
51.1 |
|
|
$ |
37.0 |
|
|
$ |
104.4 |
|
|
$ |
84.2 |
|
RECONCILIATION OF NET INCOME TO EBITDA(In
millions) (Unaudited)
|
Three months ended |
|
|
Six months ended |
|
|
June 30, |
|
|
June 30, |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
29.5 |
|
|
$ |
18.6 |
|
|
$ |
59.8 |
|
|
$ |
45.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense |
|
11.9 |
|
|
|
14.6 |
|
|
|
22.5 |
|
|
|
29.5 |
|
Interest expense |
|
4.7 |
|
|
|
4.6 |
|
|
|
9.5 |
|
|
|
9.2 |
|
Income tax expense |
|
11.4 |
|
|
|
5.1 |
|
|
|
24.2 |
|
|
|
13.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
$ |
57.5 |
|
|
$ |
42.9 |
|
|
$ |
116.0 |
|
|
$ |
97.8 |
|
IMPACT OF PERCENTAGE CHANGE IN NET
SALES (Unaudited)
|
Three months ended |
|
Six months ended |
|
June 30, |
|
June 30, |
|
2020 vs. 2019 |
|
2020 vs. 2019 |
|
|
|
|
Percentage change in net
sales: |
|
|
|
TiO2 sales volumes |
|
|
(22 |
)% |
|
|
|
|
(14 |
)% |
|
TiO2 product
pricing |
|
|
(1 |
) |
|
|
|
|
(1 |
) |
|
TiO2 product
mix/other |
|
|
4 |
|
|
|
|
|
4 |
|
|
Changes in currency
exchange rates |
|
|
(1 |
) |
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(20 |
)% |
|
|
|
|
(12 |
)% |
|
Janet Keckeisen
Vice President, Corporate Strategy
and Investor Relations
(972) 233-1700
Kronos Worldwide (NYSE:KRO)
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