Chemours Co. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in millions of dollars except per-share data. Chemours is a global performance chemicals company reporting Titanium Technologies, Thermal & Specialized Solutions, and Advanced Performance Materials, plus Other.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $1,643 | $1,915 | $3,179 | $3,679 |
| Gross profit / gross margin | $410 / 25.0% | $497 / 26.0% | $778 / 24.5% | $982 / 26.7% |
| GAAP net income (loss) attributable to Chemours | $(376) | $201 | $(231) | $434 |
| GAAP diluted EPS | $(2.52) | $1.26 | $(1.55) | $2.69 |
| Adjusted EBITDA (non-GAAP) | $324 | $475 | $628 | $878 |
| Operating cash flow | Not separately stated | Not separately stated | $(58) | $293 |
| Capital expenditures | Not separately stated | Not separately stated | $149 | $168 |
| Free cash flow (non-GAAP) | Not separately stated | Not separately stated | $(207) | $125 |
Q2 SG&A was $779 versus $254 a year earlier, largely reflecting approximately $644 of legal charges, including the $592 PFAS public-water-system settlement accrual. Q2 interest expense was $48 versus $40. First-half net loss included $645 of legal charges; the filing’s Adjusted EBITDA and other non-GAAP measures exclude specified legal, environmental, and other items.
At June 30, cash and cash equivalents were $738, with an additional $207 of restricted cash; total current assets were $3,374 and current liabilities $2,190. Debt principal was $3,653, including $25 current maturities; net debt under the company’s measure was $2,915 and net leverage was 2.6x. The revolving facility had $801 of availability and no borrowings outstanding. The company reported $3,604 of long-term debt, net. The largest listed principal maturity is $1,106 in 2025.
First-half operating cash use reflected lower earnings, working-capital movements and higher Fayetteville spending. Cash decreased by $359, to $945 including restricted cash. The company paid $75 in dividends and spent $51 on share repurchases during the first half.
Material changes and segment trends
- Sales: Q2 sales fell 14%; price increased 2%, but volume declined 16%. First-half sales also fell 14%, with a 17% volume decline partly offset by 4% higher prices and a 1% currency headwind.
- Titanium Technologies: Q2 sales declined 27% to $707 and Adjusted EBITDA fell 60% to $87; margin was 12% versus 22%, amid weaker demand, inflation and lower fixed-cost absorption.
- Thermal & Specialized Solutions: Q2 sales rose 1% to $523 and Adjusted EBITDA was essentially flat at $214; margin remained 41%. Refrigerant pricing and Opteon adoption supported results.
- Advanced Performance Materials: Q2 sales decreased 3% to $387 and Adjusted EBITDA decreased 24% to $81; margin fell to 21% from 27%, reflecting lower volume, inflation and raw-material costs.
- Other notable comparisons: Q2 2022 included $26 of gains on asset and business sales; those gains did not recur. First-half 2022 also included substantially higher Fayetteville environmental remediation expense.
Outlook, risks and unusual items
- 2023 outlook: Management expected a delayed Titanium Technologies recovery, with second-half demand flat to slightly improved versus the first half. Thermal & Specialized Solutions was expected to benefit from Opteon adoption, subject to uncertain end-market recovery and normal seasonality. Advanced Performance Materials faced weaker demand in economically sensitive products, partly offset by better demand for differentiated Performance Solutions products.
- Capital spending: Approximately $400 for 2023, split roughly evenly between growth and run, maintenance and sustainability investment.
- PFAS settlement: Chemours, DuPont and Corteva/EID agreed to fund a $1,185 public water system settlement, with Chemours responsible for 50% under the MOU. Chemours accrued $592 in Q2. Funding was to occur within ten business days after preliminary court approval; the settlement remained subject to court approval and class procedures, including opt-outs and possible termination if opt-outs exceed specified levels.
- Environmental and litigation exposure: Environmental remediation liabilities were $621, including $418 for Fayetteville; management estimated potential liabilities could be up to approximately $730 above accrued amounts under adverse changes. The filing says additional PFAS-related losses could be material but often cannot be reasonably estimated. A New Jersey request for a $943 remediation funding source and other regulatory and litigation matters remained unresolved.
- Fayetteville: The barrier wall and groundwater extraction/treatment system were constructed in June 2023, subject to final quality assurance, certification and agency review. Costs, required remedies and operating obligations remain uncertain; new standards or regulatory requirements could increase liabilities.
- Transactions and subsequent events: The Glycolic Acid business sale for approximately $137, subject to adjustments and approvals, was expected to close in Q3 2023, with a pre-tax gain anticipated. After quarter-end, Chemours announced closure of its Kuan Yin, Taiwan TiO2 site, expecting Q3 charges of $150–$160 plus $25–$45 of subsequent decommissioning costs.
- Other risks: The filing highlights macroeconomic and demand uncertainty, inflation and raw-material costs, variable-rate interest exposure, foreign exchange movements, environmental regulation, and proposed EU PFAS restrictions. Management said liquidity was expected to cover planned operations and obligations, including the water settlement, through at least July 2024.
Important facts for investors to verify
- Settlement court approval, funding timing, Chemours’ ultimate cash contribution, and the effect of class opt-outs or excluded claims.
- Operating cash generation, working-capital movements, and liquidity after settlement funding and the scheduled September 2023 MOU escrow payment.
- Demand, pricing, and margin recovery in Titanium Technologies and Advanced Performance Materials, alongside continued Thermal & Specialized Solutions performance.
- Changes in environmental remediation estimates, especially at Fayetteville, and outcomes of PFAS litigation, regulatory actions and proposed standards.
- Execution and financial impacts of the Glycolic Acid sale and Kuan Yin closure, including realized proceeds and actual charges.