Chemours Co. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar amounts are in millions unless noted. Chemours is a global performance-chemicals company, reporting through Titanium Technologies, Thermal & Specialized Solutions, and Advanced Performance Materials.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $1,915 | $1,655 | $3,679 | $3,091 |
| Gross profit | $497 | $264 | $982 | $561 |
| Net income | $201 | $66 | $434 | $161 |
| Diluted EPS | $1.26 | $0.39 | $2.69 | $0.95 |
| Adjusted EBITDA (non-GAAP) | $475 | $366 | $878 | $634 |
| Operating cash flow | Not provided for the quarter | $293 | $295 | |
| Free cash flow (non-GAAP) | Not provided for the quarter | $125 | $168 |
Q2 gross margin was approximately 26.0%, compared with 16.0% a year earlier; first-half gross margin was approximately 26.7%, versus 18.1%. Revenue rose 16% in Q2 and 19% for the first half. Pricing contributed 23% and 24%, respectively; currency was a 2% headwind in both periods. First-half sales also reflected 1% volume growth and a 4% portfolio headwind from the Mining Solutions divestiture.
Q2 segment results: Titanium Technologies sales of $968 and Adjusted EBITDA of $216 (22% margin); Thermal & Specialized Solutions sales of $518 and Adjusted EBITDA of $213 (41% margin); Advanced Performance Materials sales of $401 and Adjusted EBITDA of $107 (27% margin). Versus Q2 2021, EBITDA was nearly flat for Titanium Technologies, up substantially for Thermal & Specialized Solutions, and higher for Advanced Performance Materials.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1,248 at June 30, down from $1,451 at year-end 2021; restricted cash was another $100. The six-month cash decrease, including restricted cash and exchange effects, was $203.
- Debt principal was $3,710; net debt principal after cash was $2,462. The company reported a 1.6x net leverage ratio, versus 2.6x at June 2021. Long-term debt, net, was $3,656, with $24 of current debt.
- No revolving-credit borrowings were outstanding; the facility commitment was $900, with $105 of letters of credit outstanding. Management stated liquidity was sufficient to fund operations and obligations through at least July 2023.
- Operating cash flow was $293, while capital spending was $168, producing reported non-GAAP free cash flow of $125. Working-capital investment, particularly in receivables, constrained cash generation.
- Six-month financing outflows included $272 of share repurchases and $78 of dividends. The company completed its $1 billion 2018 repurchase authorization and began a new $750 million program; $731 remained available at June 30. The quarterly dividend was $0.25 per share, including a Q3 2022 dividend announced July 27.
Material changes and unusual items
- Higher selling prices drove sales growth, but inflation and supply constraints raised raw-material, energy, freight, and logistics costs. Titanium Technologies also faced ore shortages and an 8% Q2 volume decline.
- SG&A rose 48% in Q2, primarily reflecting approximately $108 of additional Fayetteville off-site drinking-water remediation accruals. Environmental remediation liabilities increased to $707 from $562 at year-end, including $510 for Fayetteville.
- Management recorded an additional approximately $58 accrual for Fayetteville barrier-wall and groundwater-system work, citing design development, soil testing, vendor estimates, and inflation. The barrier-wall project remained subject to regulatory review and permitting.
- Other income included $26 of Q2 gains on asset and business sales, including the Beaumont land sale and Pascagoula transaction. First-half gains were $27.
- Interest expense declined to $40 in Q2 and $82 for the first half, attributed mainly to lower debt and refinancing of 7.000% notes in 2021.
- First-half repurchases and dividends contributed to financing cash outflows; cash from operations was nearly unchanged year over year despite higher earnings.
Outlook, risks and contingencies
- Management expected continued demand strength in Titanium Technologies, with normalization toward long-term GDP rates and headwinds from raw-material inflation, shortages, logistics, and customer supply-chain issues. Thermal & Specialized Solutions outlook cited refrigerant demand, Opteon adoption, and market recovery; Advanced Performance Materials outlook cited strong polymer demand offset by input, energy, and logistics costs.
- Expected 2022 capital expenditures were approximately $400. The filing did not provide a quantified full-year sales or earnings forecast.
- Management estimated environmental remediation liabilities could, under adverse changes in circumstances, be up to approximately $720 above the amount accrued; this is not an estimate of maximum potential liability. Costs and timing remain uncertain.
- EPA’s June 2022 GenX health advisory led Chemours to propose expanded drinking-water options at qualifying properties near Fayetteville. The company challenged the advisory, while stating additional costs could arise and could not yet be estimated. Fayetteville remediation estimates depend on regulatory approvals, project scope, permits, construction costs, and long-term operating requirements.
- Under the PFAS MOU, Chemours bears half of certain future legacy PFAS costs and DuPont and Corteva collectively bear the other half, up to $4 billion in aggregate Qualified Spend. Reported aggregate spend was $223; Chemours had $100 in escrow and expected to deposit another $100 by September 30, 2022.
- New Jersey regulators sought a $943 remediation funding source for Chambers Works. Chemours said the request was not a supportable estimate and the potential loss was reasonably possible but not estimable. The filing also describes numerous PFAS matters, for which potentially material losses beyond accruals generally could not be estimated.
- Russia-Ukraine-related asset charges were $5 for the first half; Chemours suspended business with Russian entities. Management said direct revenue exposure was not expected to be material, but broader geopolitical and supply-chain effects remained uncertain.
Most important facts for investors to verify
- Whether price increases can continue to offset inflation, supply constraints, and volume weakness—particularly ore availability in Titanium Technologies.
- Cash conversion and working-capital trends, including receivables and inventory growth, alongside planned capital spending and shareholder returns.
- Fayetteville remediation: revised drinking-water obligations, the barrier-wall estimate and schedule, regulatory approvals, and potential costs beyond the $510 accrued site liability.
- Potential PFAS and other environmental liabilities, the scope and timing of MOU cost sharing, and the required escrow funding.
- Debt maturities, refinancing needs, and liquidity assumptions; the filing lists $1,094 of principal maturities in 2025 and $476 in 2026.