Valhi, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are with Q1 2020 unless stated otherwise. Valhi is a holding company whose principal segments are chemicals (Kronos), component products (CompX), and real estate management and development (BMI and LandWell). Contran owned approximately 92% of Valhi at quarter-end.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2021 |
|---|---|---|
| Net sales | $459.3 million | $509.0 million |
| Total revenues and other income | $494.2 million | $516.0 million |
| Income before income taxes | $49.3 million | $32.5 million |
| Net income | $37.9 million | $24.5 million |
| Net income attributable to Valhi stockholders | $24.4 million | $14.8 million |
| Diluted EPS | $0.86 | $0.52 |
| Cash from operating activities | $(18.2) million | $56.6 million |
Net sales rose 10.8%, while attributable net income fell 39.3%. Consolidated gross margin was $109.3 million, approximately 21.5% of sales, versus $99.7 million, approximately 21.7%, a year earlier. Total costs and expenses were $483.5 million; interest expense was $8.6 million, down from $9.7 million. Income tax expense declined to $8.0 million from $11.4 million.
Operating cash flow improved by $74.8 million, principally reflecting less cash absorbed by working-capital movements; operating income declined $19.7 million. Capital expenditures were $11.5 million, and cash used in investing activities was $7.3 million. Cash, cash equivalents and restricted cash totaled $600.9 million at quarter-end, compared with $570.3 million at year-end 2020. Including marketable securities, restricted and unrestricted liquid resources were $606.1 million.
Total debt was $765.5 million, including $2.4 million current maturities; long-term debt was $763.1 million. Cash and cash equivalents were $546.0 million, with additional restricted cash and marketable securities. Valhi had $51.6 million available under its Contran credit facility. Management reported compliance with debt covenants and expected sufficient liquidity for short- and long-term obligations, subject to actual results meeting expectations.
Material changes and segment results
- Chemicals: Sales increased 10% to $465.0 million, with volumes up 3%; currency translation added an estimated $20 million to sales. Operating income declined 19% to $37.7 million, including an estimated $16 million adverse currency impact. Average TiO₂ selling prices were 1% lower year over year, although prices rose 1% during Q1 from year-end 2020.
- Component products: Sales rose 11% to $35.9 million and operating income increased 16% to $5.8 million. Marine-components sales increased 47%, led by towboat-market demand; security-products sales increased 2%.
- Real estate management and development: Sales increased to $8.1 million from $6.0 million, but operating income fell to $7.8 million from $19.2 million. The segment recognized $6.2 million of tax-increment infrastructure reimbursement income, versus $19.1 million in Q1 2020. Higher land-sale activity supported sales.
Consolidated operating income was $51.3 million, down from $71.0 million. Other income declined to $7.0 million from $34.9 million, largely because infrastructure reimbursement was lower and Q1 2020 included currency transaction gains and insurance recoveries. Valhi paid a quarterly dividend of $0.08 per share, down from $0.24 per share in Q1 2020.
Outlook, risks and contingencies
Management expected higher consolidated operating income in 2021 than in 2020, principally from improved chemicals and component-products results. It anticipated continued demand recovery, higher TiO₂ prices and volumes, and higher component-products revenue and operating income. These expectations were not presented as quantified full-year guidance. Management also expected approximately $93 million of 2021 capital expenditures, including $85 million for chemicals, and approximately $18 million of pension-plan contributions.
Risks include COVID-19 uncertainty, cyclical TiO₂ demand and pricing, rising feedstock, shipping and other costs, supply-chain disruption, foreign-exchange movements, and the timing and completion of land sales. Land contracts in escrow may generally be cancelled before closing; LandWell expected increased infrastructure spending in 2021, some of which may qualify for tax-increment reimbursement. Management noted that supply-chain and production-cost pressures could continue.
NL had accrued approximately $93 million for environmental remediation at approximately 32 sites; the estimated upper end of reasonably possible costs for estimable sites was approximately $114 million, including the accrual. Costs at approximately five sites could not then be estimated. Valhi also reported lead-pigment litigation, including the Santa Clara settlement, with five annual installments remaining; the final installment was expected to use funds already on deposit, with any shortfall payable by NL. The company warned that litigation or environmental developments could materially affect results, financial condition or liquidity. It reported no material change in risk factors.
After quarter-end, on April 20, Kronos entered into a new $225 million global revolving credit facility maturing in April 2026; the full amount was available at inception. The filing also reported that an insurer’s appeal stayed the Certain Underwriters v. NL Industries case pending appellate review.
Important facts for investors to verify
- Whether the anticipated 2021 recovery in TiO₂ and component-products demand translated into improved full-year operating income, and how pricing, input costs and foreign exchange affected results.
- Whether land-sale escrows closed as expected and how planned infrastructure spending and reimbursements affected cash flow and earnings.
- Changes in available liquidity, subsidiary dividend distributions, debt balances and compliance with facility covenants.
- Developments in NL’s environmental remediation exposure, lead-pigment litigation, the Santa Clara settlement and insurance-recovery disputes.
- Whether COVID-19, supply-chain disruption, currency movements or other stated risks materially affected operations after the reporting date.