Trinseo Reports Second Quarter 2019 Financial Results; Updates 2019 Full Year Outlook

Second Quarter 2019 Highlights

  • Net income of $28 million, diluted EPS of $0.68 and Adjusted EPS of $0.99
  • Adjusted EBITDA of $103 million
  • Cash provided by operating activities of $81 million; Free Cash Flow of $58 million

BERWYN, Pa.–(BUSINESS WIRE)–$TSE #earnings–Trinseo (NYSE: TSE):

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 30,

$millions, except per share data

 

2019

 

2018

Net Sales

 

$

952

 

$

1,237

Net Income

 

 

28

 

 

98

EPS (Diluted) ($)

 

 

0.68

 

 

2.24

Adjusted Net Income*

 

 

41

 

 

105

Adjusted EPS ($)*

 

 

0.99

 

 

2.40

EBITDA*

 

 

88

 

 

162

Adjusted EBITDA*

 

 

103

 

 

170

_______________________

*For a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted Net Income to Net Income, as well as a reconciliation of Adjusted EPS, see note 2 below.

Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, today reported its second quarter 2019 financial results.

Net sales in the second quarter decreased 23% versus prior year. Lower prices, mainly due to the pass through of lower raw material costs, resulted in an 11% decrease. In addition, lower volumes across all segments resulted in a 9% decrease. Second quarter net income of $28 million was $70 million below prior year and second quarter Adjusted EBITDA of $103 million was $67 million below prior year due to lower margins in the Feedstocks, Performance Plastics, Latex Binders, and Synthetic Rubber segments, as well as an outage at the Company’s Boehlen, Germany styrene facility during the quarter which had a $12 million unfavorable pre-tax impact on net income and Adjusted EBITDA.

Commenting on the Company’s performance, Frank Bozich, Trinseo’s President and Chief Executive Officer, said, “Our second quarter results were impacted by the continued challenging global economic conditions, particularly in Asia and Europe. We saw pockets of optimism for improving conditions as we exited the first quarter. However, this momentum did not continue into the second quarter, which resulted in sequentially weaker conditions for styrene, polycarbonate, and ABS.”

Second Quarter Results and Commentary by Business Segment

  • Latex Binders net sales of $230 million for the quarter decreased 18% versus prior year due mainly to the pass through of lower raw material costs. In addition, sales volume was slightly lower versus prior year due to lower sales to the graphical paper and carpet markets. Adjusted EBITDA of $21 million was $15 million below prior year due to lower margins from raw material dynamics as well as competitive market conditions.
  • Synthetic Rubber net sales of $112 million for the quarter decreased 28% versus prior year due mainly to lower SSBR and ESBR sales volumes primarily as a result of weakness in the global tire market and unfavorable currency impacts. Adjusted EBITDA of $13 million was $18 million below prior year due to lower SSBR and ESBR sales volumes and margins due to weak market conditions, and an unfavorable year-over-year net timing impact of $6 million.
  • Performance Plastics net sales of $347 million for the quarter were 16% below prior year due mainly to lower prices from the pass through of lower raw material costs. Adjusted EBITDA of $34 million was $15 million below prior year due primarily to lower ABS and polycarbonate margins as a result of general market weakness and new polycarbonate supply.
  • Polystyrene net sales of $207 million for the quarter were 27% below prior year mainly due to the pass through of lower styrene cost and lower sales volumes from customer destocking in the current year in comparison to prior year customer restocking. Adjusted EBITDA of $16 million was $2 million higher than prior year due to higher margins in Europe and Asia as well as lower manufacturing costs, which were partially offset by lower sales volumes.
  • Feedstocks net sales of $55 million for the quarter were 46% below prior year due mainly to the pass through of lower market styrene prices and lower styrene-related sales. Adjusted EBITDA of negative $1 million was $33 million lower than prior year due to lower margins from weaker market conditions as well as lower production volume from an outage at our Boehlen styrene manufacturing facility. The impact of this outage during the second quarter was approximately $12 million; this facility resumed operations at the end of July.
  • Americas Styrenics Adjusted EBITDA of $40 million for the quarter was $7 million above prior year due mainly to a prior year production outage at its St. James, LA styrene manufacturing facility.

Second Quarter Cash Generation

Cash provided by operating activities for the second quarter was $81 million and capital expenditures were $23 million, resulting in Free Cash Flow for the quarter of $58 million. Second quarter cash from operations and Free Cash Flow included approximately $2 million of lower working capital. The Company repurchased approximately 0.5 million shares in the second quarter for approximately $22 million. For a reconciliation of Free Cash Flow to cash provided by operating activities, see Note 3 below.

Outlook

  • Full year 2019 net income of $148 million to $177 million and earnings per diluted share of $3.60 to $4.31
  • Full year 2019 Adjusted EBITDA of $410 million to $450 million and Adjusted EPS of $4.15 to $4.86

Commenting on the outlook for 2019, Bozich said, “We have operated in a difficult business environment for the first seven months of 2019, and our updated outlook reflects no expectation of improvement in the underlying macroeconomic conditions through the remainder of the year. However, we have executed on a number of working capital and business excellence initiatives to improve operating results and cash generation, and we continue to expand these efforts. In addition, we continue to evaluate strategic alternatives for our polycarbonate manufacturing facility in Stade, Germany due to low polycarbonate margins and a challenging outlook, and we are making significant progress on our ongoing strategic review of our business portfolio.”

For a reconciliation of full year 2019 net income to Adjusted EBITDA and Adjusted EPS, see Note 2 below. Additionally, refer to the appendix within Exhibit 99.2 of our Form 8-K, dated August 8, 2019, for further details on how net timing impacts are defined and calculated for our segments.

Conference Call and Webcast Information

Trinseo will host a conference call to discuss its second quarter 2019 financial results on Friday, August 9, 2019 at 10 a.m. Eastern Time.

Commenting on results will be Frank Bozich, President and Chief Executive Officer, and David Stasse, Executive Vice President and Chief Financial Officer. The conference call will be available by phone at:

Participant Toll-Free Dial-In Number: (833) 241-7248

Participant International Dial-In Number: +1 (647) 689-4212

Conference ID: 5973705

The Company will also offer a live Webcast of the conference call with question and answer session via the registration page of the Trinseo Investor Relations website.

Trinseo has posted its second quarter 2019 financial results on the Company’s Investor Relations website. The presentation slides will also be made available in the webcast player prior to the conference call. The Company will also furnish copies of the financial results press release and presentation slides to investors by means of a Form 8-K filing with the U.S. Securities and Exchange Commission.

A replay of the conference call and transcript will be archived on the Company’s Investor Relations website shortly following the conference call. The replay will be available until August 9, 2020.

About Trinseo

Trinseo (NYSE:TSE) is a global materials solutions provider and manufacturer of plastics, latex binders, and synthetic rubber. We are focused on delivering innovative and sustainable solutions to help our customers create products that touch lives every day — products that are intrinsic to how we live our lives — across a wide range of end-markets, including automotive, consumer electronics, appliances, medical devices, lighting, electrical, carpet, paper and board, building and construction, and tires. Trinseo had approximately $4.6 billion in net sales in 2018, with 16 manufacturing sites around the world, and approximately 2,500 employees. For more information visit www.trinseo.com.

Use of non-GAAP measures

In addition to using standard measures of performance and liquidity that are recognized in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we use additional measures of income excluding certain GAAP items (“non-GAAP measures”), such as Adjusted Net Income, EBITDA, Adjusted EBITDA and Adjusted EPS and measures of liquidity excluding certain GAAP items, such as Free Cash Flow. We believe these measures are useful for investors and management in evaluating business trends and performance each period. These income measures are also used to manage our business and assess current period profitability, as well as to provide an appropriate basis to evaluate the effectiveness of our pricing strategies. Such measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance or liquidity, as applicable. The definitions of each of these measures, further discussion of usefulness, and reconciliations of non-GAAP measures to GAAP measures are provided in the Notes to Condensed Consolidated Financial Information presented herein.

Note on Forward-Looking Statements

This press release may contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “see,” “tend,” “anticipate,” “target,” “outlook,” “guidance,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements in this press release may include, without limitation, forecasts of performance, growth, net sales, business activity, and other matters that involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, performance or achievements to differ materially from results expressed or implied by this press release. Such factors include, among others: conditions in the global economy and capital markets; the inability of the Company to execute on its business strategy; volatility in costs or disruption in the supply of the raw materials utilized for our products; loss of market share to other producers of chemical products; compliance with laws and regulations impacting our business; changes in laws and regulations applicable to our business; our inability to continue technological innovation and successful introduction of new products; system security risk issues that could disrupt our internal operations or information technology services; the loss of customers; the market price of the Company’s ordinary shares prevailing from time to time; the nature of other investment opportunities presented to the Company from time to time; and the Company’s cash flows from operations. Additional risks and uncertainties are set forth in the Company’s reports filed with the United States Securities and Exchange Commission, which are available at http://www.sec.gov/ as well as the Company’s web site at http://www.trinseo.com. As a result of the foregoing considerations, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release and are not a guarantee of future performance. All forward-looking statements are qualified in their entirety by this cautionary statement. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

TRINSEO S.A.

 

Condensed Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2019

 

2018

 

2019

 

2018

Net sales

 

$

951.8

 

$

1,236.6

 

$

1,964.9

 

$

2,358.1

Cost of sales

 

 

865.6

 

 

1,073.9

 

 

1,781.2

 

 

2,020.2

Gross profit

 

 

86.2

 

 

162.7

 

 

183.7

 

 

337.9

Selling, general and administrative expenses

 

 

71.4

 

 

61.7

 

 

140.3

 

 

126.1

Equity in earnings of unconsolidated affiliates

 

 

40.3

 

 

33.2

 

 

72.5

 

 

78.8

Operating income

 

 

55.1

 

 

134.2

 

 

115.9

 

 

290.6

Interest expense, net

 

 

9.9

 

 

10.8

 

 

20.1

 

 

25.7

Loss on extinguishment of long-term debt

 

 

 

 

0.2

 

 

 

 

0.2

Other expense, net

 

 

1.5

 

 

4.5

 

 

5.5

 

 

0.8

Income before income taxes

 

 

43.7

 

 

118.7

 

 

90.3

 

 

263.9

Provision for income taxes

 

 

15.7

 

 

20.4

 

 

26.5

 

 

45.3

Net income

 

$

28.0

 

$

98.3

 

$

63.8

 

$

218.6

Weighted average shares- basic

 

 

40.8

 

 

43.1

 

 

41.0

 

 

43.3

Net income per share- basic

 

$

0.69

 

$

2.28

 

$

1.56

 

$

5.05

Weighted average shares- diluted

 

 

41.1

 

 

43.8

 

 

41.5

 

 

44.2

Net income per share- diluted

 

$

0.68

 

$

2.24

 

$

1.54

 

$

4.95

 

TRINSEO S.A.

 

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

534.9

 

 

$

452.3

Accounts receivable, net

 

 

 

619.8

 

 

 

648.1

Inventories

 

 

 

458.5

 

 

 

510.4

Other current assets

 

 

 

25.3

 

 

 

20.5

Investments in unconsolidated affiliates

 

 

 

199.1

 

 

 

179.1

Property, plant, equipment, goodwill, and other intangible assets, net

 

 

 

828.2

 

 

 

852.2

Right-of-use assets – operating

 

 

 

70.8

 

 

 

Total other assets

 

 

 

67.6

 

 

 

64.2

Total assets

 

 

$

2,804.2

 

 

$

2,726.8

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

579.1

 

 

 

537.0

Long-term debt, net

 

 

 

1,160.5

 

 

 

1,160.8

Noncurrent lease liabilities – operating

 

 

 

55.6

 

 

 

Other noncurrent obligations

 

 

 

263.9

 

 

 

260.3

Shareholders’ equity

 

 

 

745.1

 

 

 

768.7

Total liabilities and shareholders’ equity

 

 

$

2,804.2

 

 

$

2,726.8

TRINSEO S.A.

 

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

Cash provided by operating activities

 

$

234.0

 

 

$

182.4

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Capital expenditures

 

 

(47.6

)

 

 

(59.5

)

Proceeds from capital expenditures subsidy

 

 

 

 

1.0

 

Proceeds from the sale of businesses and other assets

 

 

0.7

 

 

 

1.8

 

Cash used in investing activities

 

 

(46.9

)

 

 

(56.7

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Deferred financing fees

 

 

 

 

(0.6

)

Short-term borrowings, net

 

 

(2.3

)

 

 

(0.1

)

Purchase of treasury shares

 

 

(59.1

)

 

 

(60.5

)

Dividends paid

 

 

(33.8

)

 

 

(31.8

)

Proceeds from exercise of option awards

 

 

0.8

 

 

 

2.3

 

Withholding taxes paid on restricted share units

 

 

(4.0

)

 

 

(8.3

)

Net proceeds from issuance of 2024 Term Loan B

 

 

 

 

696.5

 

Repayments of 2024 Term Loan B

 

 

(3.5

)

 

 

(700.0

)

Cash used in financing activities

 

 

(101.9

)

 

 

(102.5

)

Effect of exchange rates on cash

 

 

(1.6

)

 

 

(4.6

)

Net change in cash, cash equivalents, and restricted cash

 

 

83.6

 

 

 

18.6

 

Cash, cash equivalents, and restricted cash—beginning of period

 

 

452.3

 

 

 

432.8

 

Cash, cash equivalents, and restricted cash—end of period

 

$

535.9

 

 

$

451.4

 

Less: Restricted cash, included in “Other current assets”

 

 

(1.0

)

 

 

Cash and cash equivalents—end of period

 

$

534.9

 

 

$

451.4

 

TRINSEO S.A.

 

Notes to Condensed Consolidated Financial Information

(Unaudited)

 

Note 1: Net sales by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

(In millions)

 

2019

 

2018

 

 

2019

 

2018

Latex Binders

 

$

230.2

 

$

280.8

 

$

454.1

 

$

536.1

Synthetic Rubber

 

 

112.1

 

 

155.3

 

 

236.7

 

 

304.5

Performance Plastics

 

 

347.5

 

 

412.8

 

 

716.8

 

 

815.6

Polystyrene

 

 

207.1

 

 

285.6

 

 

435.6

 

 

525.2

Feedstocks

 

 

54.9

 

 

102.1

 

 

121.7

 

 

176.7

Americas Styrenics*

 

 

 

 

 

 

 

 

Total Net Sales

 

$

951.8

 

$

1,236.6

 

$

1,964.9

 

$

2,358.1

_______________________

* The results of this segment are comprised entirely of earnings from Americas Styrenics, our 50% owned equity method investment. As such, we do not separately report net sales of Americas Styrenics within our condensed consolidated statements of operations.

Note 2: Reconciliation of Non-GAAP Performance Measures to Net income

EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we believe it provides our management as well as our investors with meaningful information regarding the Company’s operational performance. We believe the use of EBITDA as a metric assists our board of directors, management and investors in comparing our operating performance on a consistent basis.

We also present Adjusted EBITDA as a non-GAAP financial performance measure, which we define as income from continuing operations before interest expense, net; income tax provision; depreciation and amortization expense; loss on extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets; restructuring charges; acquisition related costs and other items. In doing so, we are providing management, investors, and credit rating agencies with an indicator of our ongoing performance and business trends, removing the impact of transactions and events that we would not consider a part of our core operations.

Lastly, we present Adjusted Net Income and Adjusted EPS as additional performance measures. Adjusted Net Income is calculated as Adjusted EBITDA (defined beginning with net income, above), less interest expense, less the provision for income taxes and depreciation and amortization, tax affected for various discrete items, as appropriate. Adjusted EPS is calculated as Adjusted Net Income per weighted average diluted shares outstanding for a given period. We believe that Adjusted Net Income and Adjusted EPS provide transparent and useful information to management, investors, analysts and other stakeholders in evaluating and assessing our operating results from period-to-period after removing the impact of certain transactions and activities that affect comparability and that are not considered part of our core operations.

There are limitations to using the financial performance measures noted above. These performance measures are not intended to represent net income or other measures of financial performance. As such, they should not be used as alternatives to net income as indicators of operating performance. Other companies in our industry may define these performance measures differently than we do. As a result, it may be difficult to use these or similarly-named financial measures that other companies may use, to compare the performance of those companies to our performance. We compensate for these limitations by providing reconciliations of these performance measures to our net income, which is determined in accordance with GAAP.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

June 30,

 

 

 

(In millions, except per share data)

 

2019

 

 

2018

 

 

 

 

Net income

 

$

28.0

 

 

$

98.3

 

 

 

 

Interest expense, net

 

 

9.9

 

 

 

10.8

 

 

 

 

Provision for income taxes

 

 

15.7

 

 

 

20.4

 

 

 

 

Depreciation and amortization

 

 

34.7

 

 

 

32.3

 

 

 

 

EBITDA

 

$

88.3

 

 

$

161.8

 

 

 

 

Loss on extinguishment of long-term debt

 

 

 

 

0.2

 

 

 

Loss on extinguishment of long-term debt

Restructuring and other charges (a)

 

 

(0.3

)

 

 

1.2

 

 

 

Selling, general, and administrative expenses

Acquisition transaction and integration costs (b)

 

 

0.7

 

 

 

0.2

 

 

 

Selling, general, and administrative expenses

Other items (c)

 

 

14.1

 

 

 

6.8

 

 

 

Cost of Sales; Selling, general, and administrative expenses; Other expense, net

Adjusted EBITDA

 

$

102.8

 

 

$

170.2

 

 

 

 

Adjusted EBITDA to Adjusted Net Income:

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

102.8

 

 

 

170.2

 

 

 

 

Interest expense, net

 

 

9.9

 

 

 

10.8

 

 

 

 

Provision for income taxes – Adjusted (d)

 

 

19.1

 

 

 

22.3

 

 

 

 

Depreciation and amortization – Adjusted (e)

 

 

33.1

 

 

 

32.1

 

 

 

 

Adjusted Net Income

 

$

40.7

 

 

$

105.0

 

 

 

 

Adjusted EPS

 

$

0.99

 

 

$

2.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA by Segment:

 

 

 

 

 

 

 

 

 

Latex Binders

 

$

20.6

 

 

$

36.0

 

 

 

 

Synthetic Rubber

 

 

12.9

 

 

 

30.6

 

 

 

 

Performance Plastics

 

 

34.2

 

 

 

48.9

 

 

 

 

Polystyrene

 

 

16.2

 

 

 

13.7

 

 

 

 

Feedstocks

 

 

(0.6

)

 

 

32.4

 

 

 

 

Americas Styrenics

 

 

40.3

 

 

 

33.2

 

 

 

 

Corporate unallocated

 

 

(20.8

)

 

 

(24.6

)

 

 

 

Adjusted EBITDA

 

$

102.8

 

 

$

170.2

 

 

 

 

_______________________

(a)

Restructuring and other charges for the three months ended June 30, 2019 and 2018 primarily relate to decommissioning, contract termination, and employee termination benefit charges incurred in connection with the upgrade and replacement of our compounding facility in Terneuzen, The Netherlands as well as our decision to cease manufacturing activities at our latex binders manufacturing facility in Livorno, Italy. Note that the accelerated depreciation charges incurred in 2018 as part of the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands are included within the “Depreciation and amortization” caption above, and therefore are not included as a separate adjustment within this caption.

 

(b)

Acquisition, transaction, and integration costs for the three months ended June 30, 2019 and 2018 primarily relate to advisory and professional fees incurred in conjunction with the our acquisition of production assets in Rheinmünster, Germany and our acquisition of API Plastics, respectively.

 

(c)

Other items for the three months ended June 30, 2019 and 2018 primarily relate to advisory and professional fees incurred in conjunction with the Company’s initiative to transition business services from Dow, including certain administrative services such as accounts payable, logistics, and IT services. Also included within other items for the three months ended June 30, 2019 are fees incurred in conjunction with certain of the Company’s strategic initiatives.

 

(d)

Adjusted to remove the tax impact of the items noted in (a), (b), (c), and (e). The income tax expense (benefit) related to these items was determined utilizing either (1) the estimated annual effective tax rate on our ordinary income based upon our forecasted ordinary income for the full year or, (2) for items treated discretely for tax purposes we utilized the applicable rates in the taxing jurisdictions in which these adjustments occurred. Additionally, the three months ended June 30, 2018 excludes a $1.2 million discrete tax benefit related to certain legal entity restructuring, partially offset by $0.6 million in tax expense related to adjustments in reserves for uncertain tax positions.

 

(e)

For the three months ended June 30, 2019, the amount excludes accelerated depreciation of $1.6 million related to the shortening of the useful life of certain information technology assets related to the transition of business services from The Dow Chemical Company (noted in (c) above). For the three months ended June 30, 2018, the amount excludes accelerated depreciation of $0.3 million related to the upgrade and replacement of the Company’s compounding facility in Terneuzen, The Netherlands.

For the same reasons discussed above, we are providing the following reconciliation of forecasted net income to forecasted Adjusted EBITDA and Adjusted EPS for the full year ended December 31, 2019. See “Note on Forward-Looking Statements” above for a discussion of the limitations of these forecasts.

 

 

 

 

 

 

 

 

Year Ended

 

 

 

December 31,

(In millions, except per share data)

 

 

2019

Adjusted EBITDA

 

 

$

410 – 450

Interest expense, net

 

 

 

(42)

Provision for income taxes

 

 

 

(57) – (68)

Depreciation and amortization

 

 

 

(137)

Reconciling items to Adjusted EBITDA (f)

 

 

 

(26)

Net Income

 

 

 

148 – 177

Reconciling items to Adjusted Net Income (f)

 

 

 

22

Adjusted Net Income

 

 

 

170 – 199

 

 

 

 

 

Weighted average shares – diluted (g)

 

 

 

41.0

EPS – diluted

 

 

$

3.60 – 4.31

Adjusted EPS

 

 

$

4.15 – 4.86

Contacts

Press contact:

Trinseo

Donna St. Germain

Tel : +1 610-240-3307

Email: stgermain@trinseo.com

Investor Contact:

Trinseo

David Stasse

Tel : +1 610-240-3207

Email: dstasse@trinseo.com

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