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

First Quarter 2019 Highlights

  • Net income of $36 million, diluted EPS of $0.86 and Adjusted EPS of
    $1.09
  • Adjusted EBITDA of $102 million
  • Cash provided by operating activities of $153 million; Free Cash Flow
    of $128 million

BERWYN, Pa.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24TSE&src=ctag” target=”_blank”gt;$TSElt;/agt; lt;a href=”https://twitter.com/hashtag/earnings?src=hash” target=”_blank”gt;#earningslt;/agt;–Trinseo (NYSE: TSE):

 
      Three Months Ended
March 31,
$millions, except per share data 2019     2018
Net Sales $ 1,013 $ 1,122
Net Income 36 120
EPS (Diluted) ($) 0.86 2.71
Adjusted Net Income* 46 122
Adjusted EPS ($)* 1.09 2.76
EBITDA* 91 192
Adjusted EBITDA* 102 195
 

____________________

         

*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 first quarter
2019 financial results.

Net sales in the first quarter decreased 10% versus prior year. The pass
through of lower raw material cost resulted in a 15% decrease in net
sales. This impact was partially offset by higher sales volumes across
all segments except Synthetic Rubber. First quarter net income of $36
million was $84 million lower than prior year and first quarter Adjusted
EBITDA of $102 million was $93 million lower than prior year. These
decreases were mainly due to lower margins in the Feedstocks,
Performance Plastics and Latex Binders segments and lower equity
affiliate income from Americas Styrenics. Overall, the results of the
quarter were affected by macroeconomic dynamics in China as well as
weakness in certain key markets such as automotive and tires. Net income
was also impacted by approximately $9 million of higher pre-tax spending
related to the transition of business services from The Dow Chemical
Company.

Commenting on the Company’s performance, Frank Bozich, Trinseo President
and Chief Executive Officer, said, “While improved versus the fourth
quarter, our first quarter results were affected by continued weak
automotive and tire markets and the weak economic environment in China.
Despite this, we delivered very strong cash generation in the first
quarter as a result of actions taken to reduce inventory levels.”

First Quarter Results and Commentary by Business Segment

  • Latex Binders net sales of $224 million for the quarter
    decreased 12% versus prior year due to the pass through of lower raw
    material costs. Volume was higher versus prior year, as increases to
    the paper, board and carpet markets in North America and Europe were
    partially offset by a decrease to the paper market in Asia from a
    customer outage. Adjusted EBITDA of $18 million was $9 million below
    prior year due to lower margins from raw material dynamics as well as
    competitive market conditions.
  • Synthetic Rubber net sales of $125 million for the quarter
    decreased 16% versus prior year due mainly to lower SSBR and ESBR
    sales volume as well as currency impacts. Adjusted EBITDA of $9
    million included an unfavorable net timing impact and was $17 million
    below prior year. The year-over-year decline was due mainly to lower
    SSBR and ESBR sales volume as well as unfavorable net timing.
  • Performance Plastics net sales of $369 million for the quarter
    was 8% below prior year due mainly to lower prices from the pass
    through of lower styrene cost as well as lower polycarbonate prices
    from a decrease in industry operating rates. Adjusted EBITDA of $36
    million was $30 million below prior year due to lower polycarbonate
    and ABS margins from a combination of factors including a slowdown in
    the automotive industry and general market softness in China. While
    ABS margins were lower versus prior year, we are encouraged that
    margin levels have experienced some recovery and are currently at the
    highest levels since the second quarter of 2018.
  • Polystyrene net sales of $228 million for the quarter were 5%
    below prior year mainly due to pass through pricing which was
    partially offset by higher sales from customer restocking and more
    favorable market conditions. Adjusted EBITDA of $17 million was $7
    million higher than prior year due mainly to higher volume.
  • Feedstocks net sales of $67 million for the quarter were 10%
    below prior year due mainly to the pass through of lower market
    styrene prices, which was partially offset by higher styrene-related
    sales. Adjusted EBITDA of $17 million was $25 million lower than prior
    year due to lower margin as well as lower production volume from
    unplanned outages at our Terneuzen and Boehlen styrene manufacturing
    facilities.
  • Americas Styrenics Adjusted EBITDA of $32 million for the
    quarter was $14 million below prior year due mainly to lower styrene
    margins as well as a planned styrene maintenance outage in the first
    quarter of 2019.

First Quarter Cash Generation

Cash provided by operating activities for the first quarter was $153
million and capital expenditures were $25 million, resulting in Free
Cash Flow for the quarter of $128 million. First quarter cash from
operations and Free Cash Flow included approximately $105 million of
lower working capital. The Company repurchased about 0.7 million shares
in the first quarter for approximately $37 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 $237 million to $290 million and earnings
    per diluted share of $5.73 to $7.00
  • Full year 2019 Adjusted EBITDA of $500 million to $560 million and
    Adjusted EPS of $6.00 to $7.27

Commenting on the outlook for 2019, Bozich said, “While we have seen
signs of improved demand across some of our markets, the automotive and
tire markets remain weak, as do many of the end markets in China into
which we sell. Amid these conditions, we have initiated a number of
working capital and cost initiatives to improve operating results. We
are also evaluating strategic alternatives for our polycarbonate
manufacturing facility in Stade, Germany due to significantly declining
polycarbonate margins resulting from low demand and new capacity in
China. This is the first action from our ongoing strategic review of our
business portfolio. We are cautiously optimistic about better economic
conditions in the second half of 2019 and we remain focused on cash
generation and cost management.”

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 May 2, 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 first quarter 2019
financial results on Friday, May 3, 2019 at 10 a.m. Eastern Time.

Commenting on results will be Frank Bozich, President and Chief
Executive Officer, Barry Niziolek, Executive Vice President and Chief
Financial Officer, and David Stasse, Vice President, Treasury and
Investor Relations. 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:
6287412

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 first 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 May 3, 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
March 31,
2019 2018
Net sales $ 1,013.1 $ 1,121.6
Cost of sales   915.7   946.4
Gross profit 97.4 175.2
Selling, general and administrative expenses 68.8 64.4
Equity in earnings of unconsolidated affiliates   32.2   45.5
Operating income 60.8 156.3
Interest expense, net 10.2 14.9
Other expense (income), net   4.0   (3.8)
Income before income taxes 46.6 145.2
Provision for income taxes   10.8   24.9
Net income $ 35.8 $ 120.3
Weighted average shares- basic 41.3 43.4
Net income per share- basic $ 0.87 $ 2.77
Weighted average shares- diluted 41.8 44.4
Net income per share- diluted $ 0.86 $ 2.71
 
 

TRINSEO S.A.

 

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

         
March 31, December 31,
2019 2018
Assets
Cash and cash equivalents $ 516.4 $ 452.3
Accounts receivable, net 650.4 648.1
Inventories 447.9 510.4
Other current assets 25.4 20.5
Investments in unconsolidated affiliates 198.9 179.1
Property, plant, equipment, goodwill, and other intangible assets,
net
829.9 852.2
Right-of-use assets – operating 68.1
Total other assets   69.5   64.2
Total assets $ 2,806.5 $ 2,726.8
Liabilities and shareholders’ equity
Current liabilities 582.8 537.0
Long-term debt, net 1,160.4 1,160.8
Noncurrent lease liabilities – operating 53.2
Other noncurrent obligations 257.0 260.3
Shareholders’ equity   753.1   768.7
Total liabilities and shareholders’ equity $ 2,806.5 $ 2,726.8
 
 

TRINSEO S.A.

 

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

         
Three Months Ended
March 31,
2019 2018
Cash flows from operating activities
Cash provided by operating activities $ 153.2 $ 40.8
 
Cash flows from investing activities
Capital expenditures (25.0) (30.6)
Proceeds from the sale of businesses and other assets   0.7   0.5
Cash used in investing activities   (24.3)   (30.1)
 
Cash flows from financing activities
Short-term borrowings, net (0.1) (0.1)
Purchase of treasury shares (37.4) (23.8)
Dividends paid (17.4) (16.2)
Proceeds from exercise of option awards 0.1 1.9
Withholding taxes paid on restricted share units (3.8) (8.0)
Repayments of 2024 Term Loan B   (1.8)   (1.8)
Cash used in financing activities (60.4) (48.0)
Effect of exchange rates on cash   (1.6)   3.4
Net change in cash, cash equivalents, and restricted cash 66.9 (33.9)
Cash, cash equivalents, and restricted cash—beginning of period   452.3   432.8
Cash, cash equivalents, and restricted cash—end of period $ 519.2 $ 398.9
Less: Restricted cash, included in “Other current assets”   (2.8)  
Cash and cash equivalents—end of period $ 516.4 $ 398.9
 
 

TRINSEO S.A.

 

Notes to Condensed Consolidated Financial Information

(Unaudited)

 

Note 1: Net sales by Segment

                           
Three Months Ended
March 31,
(In millions) 2019 2018
Latex Binders $ 223.9 $ 255.3
Synthetic Rubber 124.6 149.2
Performance Plastics 369.3 402.9
Polystyrene 228.5 239.6
Feedstocks 66.8 74.6
Americas Styrenics*    
Total Net Sales $ 1,013.1 $ 1,121.6
 

____________________

       

* 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      
March 31,
(In millions, except per share data) 2019     2018
Net income $ 35.8 $ 120.3
Interest expense, net 10.2 14.9
Provision for income taxes 10.8 24.9
Depreciation and amortization   33.9   31.9
EBITDA $ 90.7 $ 192.0
Net gain on disposition of businesses and assets (a) (0.2) (0.5) Other expense (income), net
Restructuring and other charges (b) 0.4 0.5 Selling, general, and administrative expenses
Acquisition transaction and integration costs (c) 0.3 Selling, general, and administrative expenses
Other items (d)   11.1   2.7 Selling, general, and administrative expenses
Adjusted EBITDA $ 102.0 $ 195.0

Adjusted EBITDA to Adjusted Net Income:

Adjusted EBITDA 102.0 195.0
Interest expense, net 10.2 14.9
Provision for income taxes – Adjusted (e) 12.7 26.0
Depreciation and amortization – Adjusted (f)   33.4   31.7
Adjusted Net Income $ 45.7 $ 122.4
Adjusted EPS $ 1.09 $ 2.76
 

Adjusted EBITDA by Segment:

Latex Binders $ 17.5 $ 27.5
Synthetic Rubber 8.8 25.5
Performance Plastics 35.5 65.5
Polystyrene 16.8 9.6
Feedstocks 17.2 41.5
Americas Styrenics 32.2 45.5
Corporate unallocated   (26.0)   (20.1)
Adjusted EBITDA $ 102.0 $ 195.0
 

____________________

(a)    

Net gains on disposition of businesses and assets for the three
months ended March 31, 2019 and 2018 relate to contingent
consideration earned for the performance of our former latex
business in Brazil, which we divested in 2016.

 
(b) Restructuring and other charges for the three months ended March 31,
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.
 
(c) Acquisition transaction and integration costs for the three months
ended March 31, 2018 relate to advisory and professional fees
incurred in conjunction with the Company’s acquisition of API
Plastics.
 
(d) Other items for the three months ended March 31, 2019 and 2018
primarily relate to advisory and professional fees incurred in
conjunction with the Company’s initiative to transition business
services from The Dow Chemical Company, including certain
administrative services such as accounts payable, logistics, and IT
services.
 
(e) Adjusted to remove the tax impact of the items noted in (a), (b),
(c), (d), and (f). 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 March 31, 2018 excludes a $0.5
million tax benefit recognized during the period related to
provision to return adjustments.
 
(f) For the three months ended March 31, 2019, the amount excludes
accelerated depreciation of $0.5 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 (d) above). For the three months ended March 31, 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 $ 500 – 560
Interest expense, net (42)
Provision for income taxes (75) – (82)
Depreciation and amortization (135)
Reconciling items to Adjusted EBITDA (g)   (11)
Net Income 237 – 290
Reconciling items to Adjusted Net Income (g)   11
Adjusted Net Income   248 – 301
 
Weighted average shares – diluted (h) 41.4
EPS – diluted $ 5.73 – 7.00
Adjusted EPS $ 6.00 – 7.27
 

____________________

(g)     Reconciling items to Adjusted EBITDA and Adjusted Net Income are not
typically forecasted by the Company based on their nature as being
primarily driven by transactions that are not part of the core
operations of the business. As such, for the forecasted full year
ended December 31, 2019, we have not included estimates for these
items.
 
(h) Weighted average shares calculated for the purpose of forecasting
Adjusted EPS do not forecast significant future share transactions
or events, such as repurchases, significant share-based compensation
award grants, and changes in the Company’s share price. These are
all factors which could have a significant impact on the calculation
of Adjusted EPS during actual future periods.
 

Contacts

Press contacts:
Trinseo
Donna St. Germain
Tel : +1
610-240-3307
Email: stgermain@trinseo.com

Makovsky
Doug Hesney
Tel: +1 212-508-9661
Email: dhesney@makovsky.com

Investor Contact:
Trinseo
David Stasse
Tel : +1
610-240-3207
Email: dstasse@trinseo.com

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