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Tronox 3Q 2020 results: sales down 12% to $675 million, operating income flat

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Tronox 3Q 2020 results: sales down 12% to $675 million, operating income flat

October 29, 2020 - 18:38
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STAMFORD, CT, Oct. 28, 2020 (Press Release) -Tronox's third quarter results grew sequentially driven by improving market conditions throughout the quarter.  TiO2volumes increased 16 percent quarter over quarter, while pricing remained level.  TiO2sales volumes benefited from sequential volume growth in all regions led by a significant recovery in South and Central America.  Compared to the third quarter of last year, sales volumes were higher in Latin America, level in North America, and lower slightly in Europe, while volumes lagged in Asia Pacific, largely due to the COVID-19 impact in India.  Zircon revenue declined 18 percent sequentially, as shipment timing led to a reallocation of volumes between quarters, resulting in 15 percent lower sales volumes sequentially, and price was impacted by 2 percent driven largely by product mix.  Feedstock and other products revenues improved sequentially as market conditions supported improved pig iron sales and mandated CP slag shipments resumed.  Tronox delivered Adjusted EBITDA of $148 million and an Adjusted EBITDA margin of 22 percent, which reflected the impact of adjusting our operations to accommodate the effects of the pandemic as projected.  This impact was minimized through continued cost reductions as well as acquisition synergies totaling $183 million year to date, with $134 million reflected in Adjusted EBITDA. 

Commenting on these results, Jeffry N. Quinn, chairman and chief executive officer, stated, "Our third quarter results continue to reflect the strength of our vertically integrated business and our ability to optimize our operations across a variety of business conditions.  Utilizing our proprietary enterprise optimization capabilities, we adjusted our operations to accommodate the effects of the pandemic, which resulted in increased production costs and a slight temporary impact to margins as we foreshadowed on our second quarter earnings call.  However, the strength of synergies captured and cost reductions minimized the impact on our margin profile.  As the quarter progressed, we also saw a benefit from the regional diversity of our revenue profile as demand in all regions returns to more normalized levels on a staggered basis.

"The trajectory moving out of the third quarter is indicative of the improving market conditions we expect through the end of the year and into 2021.  While the macro environment remains uncertain, we anticipate a favorable deviation from normal fourth quarter seasonality, resulting in strong fourth quarter TiO2sales volumes at or above third quarter 2020 and fourth quarter 2019 levels.  Additionally, as a result of shipment timing and continued recovery in end market demand, fourth quarter zircon sales volumes are expected to be the strongest of the year, improving sequentially from the third quarter in the range of 25 percent.

"Given our continued demonstration of the benefits of our vertically integrated business model, we are raising our full year 2020 synergy target to $235 million with $185 million expected to be reflected in Adjusted EBITDA.  Our expectation of incremental synergy achievement combined with the strength of our commercial outlook and offsetting cost reductions should result in Adjusted EBITDA in the fourth quarter in the range of $155 to $170 million with an Adjusted EBITDA margin improvement back to first half 2020 levels.

"From a liquidity and capital resources perspective, we are pleased with how well our business is positioned despite the pandemic, attributable to the strength of our business model.  As we move closer to the end of the year, we are evaluating incremental debt pay down options utilizing excess liquidity on the balance sheet to advance further towards our gross debt target of $2.5 billion."

Mr. Quinn concluded, "I am extremely proud of how focused our entire Tronox team has remained throughout the prolonged pandemic, prioritizing safety and looking out for the health and well-being of one another while continuing to deliver safe, quality, low-cost, sustainable tons for our customers.  The strength in our performance speaks to the resiliency of our business and reinforces our confidence in Tronox's positioning for the recovery to come."

Financial Summary for the Quarter Ending September 30, 2020

Tronox reported revenue of $675 million for the third quarter 2020, a decrease of 12 percent compared to third quarter 2019 revenues of $768 million.  Income from operations of $49 million compared to $48 million in the year-ago quarter.  Net income attributable to Tronox was $896 million, or $6.18 per diluted share, compared to a net loss from continuing operations attributable to Tronox of $13 million, or $(0.09) per diluted share, in the year-ago quarter.  Net income attributable to Tronox in the third quarter 2020 included transaction costs related to the acquisition of TTI, a tax valuation allowance, and other adjustments that totaled $(889) million or $(6.13) per diluted share.  Excluding these items, adjusted net income attributable to Tronox (Non-GAAP) was $7 million, or $0.05 per diluted share.  Adjusted EBITDA of $148 million decreased 20 percent compared to $184 million in the prior-year quarter.

Third Quarter 2020 vs. Third Quarter 2019

  • Revenue of $675 million decreased 12 percent compared to $768 million, driven largely by impacts from COVID-19
  • TiO2sales of $543 million decreased 10 percent compared to $603 million; sales volumes declined 9 percent versus the year ago quarter due to impacts from COVID-19; selling prices declined 1 percent on a U.S. dollar basis and 3 percent on a local currency basis year over year
  • Zircon sales of $56 million decreased 18 percent from $68 million; selling prices were 11 percent lower and sales volumes declined 7 percent due to softer market conditions, primarily in China
  • Feedstock and other products sales of $76 million decreased 22 percent from $97 million due to lower pig iron, and mandated CP slag volumes due to COVID-19
  • Adjusted EBITDA of $148 million decreased 20 percent compared to $184 million, driven primarily by lower sales due to COVID-19, increased production costs due to adjusting our operations to accommodate the effects of the pandemic, pigment plant idle facility charges and LCM charges, and absence of deferred margin benefit; this was partially offset by synergies, cost reductions, improved Australia mining costs, primarily driven by the legacy Cristal Gingko mining operations following production downtime in Q3 2019, and FX tailwinds
  • Selling, general and administrative ("SG&A") expenses were $89 million compared to $82 million
  • Interest expense of $48 million decreased from $51 million in the year-ago quarter

Third Quarter 2020 vs. Second Quarter 2020

  • Revenue of $675 million increased 17 percent compared to $578 million, primarily due to improving TiO2volumes throughout the quarter
  • TiO2sales of $543 million increased 17 percent compared to $466 million; sales volumes increased 16 percent driven by continued strength in North America, and improved market demand in South America and Europe; selling prices remained level sequentially on a U.S. dollar basis and declined 1 percent on a local currency basis
  • Zircon sales of $56 million decreased 18 percent from $68 million, driven by an 15 percent decline in sales volumes that was a result of shipment timing between quarters; selling prices declined 2 percent sequentially due to product mix
  • Feedstock and other products sales of $76 million increased 73 percent compared to $44 million, as sales volumes of pig iron improved and mandated CP slag sales resumed in the quarter
  • Adjusted EBITDA of $148 million increased 4 percent compared to $142 million, driven primarily by improved TiO2and feedstock and other sales volumes, improved operating costs in South Africa and Australia, and synergies; this was partially offset by increased production costs due to adjusting our operations to accommodate the effects of the pandemic, pigment plant idle facility charges and LCM charges, and FX headwinds
  • SG&A expenses were $89 million compared to $80 million
  • Interest expense was $48 million compared to $47 million

Other Financial Information

  • As of September 30, 2020, debt was $3.5 billion and debt, net of cash and cash equivalents was $2.8 billion
  • Liquidity was $1.1 billion as of September 30, 2020, comprised of cash and cash equivalents of $722 million and $376 million available under revolving credit agreements
  • Restricted cash of $27 million includes $18 million held in escrow related to the TTI acquisition
  • In the third quarter 2020, capital expenditures were $47 million and depreciation, depletion and amortization expense was $76 million
  • Free Cash Flow for the quarter was $37 million

About Tronox

Tronox Holdings plc is one of the world's leading producers of high-quality titanium products, including titanium dioxide pigment, specialty-grade titanium dioxide products and high-purity titanium chemicals; and zircon. We mine titanium-bearing mineral sands and operate upgrading facilities that produce high-grade titanium feedstock materials, pig iron and other minerals. With nearly 7,000 employees across six continents, our rich diversity, unmatched vertical integration model, and unparalleled operational and technical expertise across the value chain, position Tronox as the preeminent titanium dioxide producer in the world. For more information about how our products add brightness and durability to paints, plastics, paper and other everyday products, visittronox.com.

[For the full results and financial tables, click here.]