Kronos Worldwide, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Kronos produces and markets titanium dioxide (TiO₂) pigments. Figures are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial performance and position
- Revenue: Net sales were $465.0 million, up 10% from $421.0 million. Sales volumes rose 3%; average selling prices declined 1%; currency translation added an estimated $20 million to sales.
- Profit and margins: Gross margin was $95.7 million (about 21% of sales), versus $88.1 million (about 21%). Operating income declined 22% to $34.0 million from $43.5 million; operating margin fell to about 7% from 10%. Net income was $19.6 million, or $0.17 per diluted share, versus $27.0 million, or $0.23.
- Cash flow: Operating activities provided $56.7 million, compared with $9.8 million used in Q1 2020. Capital expenditures were $10.8 million; dividends paid were $20.8 million. Cash, cash equivalents and restricted cash increased to $379.9 million from $362.0 million at year-end 2020.
- Liquidity and debt: At March 31, cash and cash equivalents were $373.6 million, with restricted cash of $6.3 million. Total debt was $466.6 million, including €400 million principal of 3.75% senior secured notes due September 2025. On April 20, the company entered a new $225 million revolving facility maturing in April 2026; it reported no borrowings and full availability at the filing date. The company reported covenant compliance at March 31.
- Other balance-sheet items: Total assets were $1,996.6 million and stockholders’ equity was $800.9 million at March 31. Inventories were $473.0 million, down from $519.0 million at year-end.
Changes versus Q1 2020
- Revenue increased $44.0 million, supported by higher volumes and favorable currency translation, despite lower average TiO₂ prices.
- Operating income fell $9.5 million. Management estimated currency movements reduced operating income by approximately $16 million, including lower transaction gains and translation losses; lower production costs partly offset volume-related cost increases.
- Net income also reflected a $1.5 million insurance settlement gain in Q1 2020 that did not recur. Q1 2021 operating facilities ran at 97% average capacity utilization versus 95%; production volume decreased 1%, partly due to a sulfate-production phase-out.
- Operating cash flow improved by $66.5 million, primarily because of more favorable movements in receivables, inventories, payables and accruals.
Outlook, risks and unusual items
- Management expected 2021 sales and operating income to exceed 2020, principally due to higher TiO₂ selling prices and sales volumes. It expected strong demand and further price increases, while noting rising feedstock and shipping costs and supply-chain disruption.
- The company planned approximately $85 million of 2021 capital expenditures, including $10.8 million spent in Q1, and expected pension-plan contributions of approximately $17 million. Management expected sufficient liquidity for near- and longer-term obligations, subject to actual results and conditions.
- Management cited COVID-19 uncertainty, cyclical TiO₂ demand, pricing and competition, customer and producer inventories, raw-material availability and cost, foreign exchange, operating interruptions, environmental regulation, tax matters and access to liquidity as risks. Facilities remained open and operational, with limited workforce COVID-19 cases reported.
- Various environmental, contractual, product-liability, intellectual-property, employment and other claims were disclosed. No litigation amounts were accrued; the company stated it did not believe a material loss was reasonably possible. Tax authorities were examining certain returns; management believed its accruals adequate.
- The filing stated disclosure controls were effective and there were no material changes in internal control over financial reporting or material changes to previously disclosed risk factors during the quarter.
Important facts for investors to verify
- Whether TiO₂ selling-price gains and stronger volumes materialize enough to offset increasing feedstock, shipping and other production costs.
- How currency movements affect operating income: reported sales benefited from translation, while overall currency effects reduced operating income year over year.
- The terms, borrowing availability and covenant requirements of the $225 million revolving facility entered into after quarter-end.
- Cash-flow sustainability, planned capital spending and dividends in light of the industry’s cyclicality and demand uncertainty.
- Potential outcomes of tax examinations and environmental or other claims, for which the filing does not provide a clear quantified exposure.