Kraton Corporation (KRA) Tops Q1 EPS by 23c, Revenues Miss

Kraton Corporation (NYSE: KRA) reported Q1 EPS of $0.88, $0.23 better than the analyst estimate of $0.65. Revenue for the quarter came in at $456.11 million versus the consensus estimate of $491.64 million.

"First quarter 2019 consolidated Adjusted EBITDA of $89.4 million reflects improved margins and profitability in our Polymer segment, compared to the first quarter 2018, and stable unit margins in our Chemical segment as we worked to return to full operational capability at our Panama City, Florida, site," said Kevin M. Fogarty, Kraton's President and Chief Executive Officer. "Polymer segment Adjusted EBITDA of $48.2 million for the first quarter 2019 was up nearly 8% compared to the first quarter 2018, despite lower sales in our Specialty Polymer business associated with the impact of the previously disclosed inventory management program by a large lubricant additive customer and softer demand fundamentals in China and broader Asia. While sales volume in our Performance Products business was unchanged relative to the first quarter 2018, we did see improved activity in non-core paving markets such as Australia, and favorable SBS sales in North America in advance of the typical second and third quarter paving season, which has seen a slow start given poor weather conditions in our core North American and European markets," Fogarty said. "Continued growth in our differentiated CariflexTM business, with sales volume up 5% compared to the first quarter 2018, as well as improved plant utilization and overall operating metrics associated with higher production levels at our Mailiao, Paulina, and Berre facilities relative to the first quarter 2018 contributed to the improvement in overall segment profitability. As a result, the Adjusted EBITDA margin for the Polymer segment was 18.4%, up 290 basis points compared to the year-ago quarter and up 220 basis points compared to the fourth quarter of 2018."

"First quarter 2019 Adjusted EBITDA for the Chemical segment was $41.3 million, down 5.9% compared to the year-ago quarter. During the quarter we recognized a gain on insurance proceeds which served to offset the impact of lost revenue and associated margin at our Panama City site, given that full operational capability of our Crude Sulfate Turpentine refinery was not restored until late in the quarter. The decrease in Adjusted EBITDA compared to the first quarter 2018 is largely attributable to lower sales of Tall Oil Rosin and related derivatives, which contributed to less favorable sales mix relative to the year-ago quarter," said Fogarty. "Overall, first quarter 2019 market conditions for the Chemical segment reflected relative stability in our Adhesives business and continued favorable market fundamentals for TOFA and upgraded derivative products, which in combination with tightness in the Crude Tall Oil feedstock market supports the global price increase we implemented effective March 1st," added Fogarty.

"As previously communicated, debt reduction remains a primary strategic focus in 2019. While the first quarter of the year is not historically a period of cash generation for Kraton due to factors including a seasonal inventory build in advance of the paving season, given our current outlook for the year, we still expect to reduce consolidated net debt, excluding the effect of foreign currency, by $170 - $190 million in 2019," Fogarty said. "With respect to the strategic review process for Cariflex, we are encouraged by the high level of indicated interest. However, given the expected timeline for the formal review process, we do not anticipate providing further updates until later in the year."

OUTLOOK

At the time of our fourth quarter earnings release we highlighted a possible timing difference between lost sales and associated margin in the first quarter 2019 and the reimbursement by our insurance carriers in a subsequent quarter. However, during the first quarter 2019 we recognized a gain on insurance which offset the lost margin of $5.9 million, eliminating the previously anticipated timing difference. We continue to anticipate that 2019 Adjusted EBITDA will be in a range of $370 - $390 million.

Consistent with the aforementioned 2019 Adjusted EBITDA range, and excluding any activity under the previously announced share buyback program, we currently anticipate reducing consolidated net debt (excluding the effects of foreign currency) by $170 - $190 million in 2019.

For earnings history and earnings-related data on Kraton Corporation (KRA) click here.

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