Kraton Corporation (KRA) Misses Q4 EPS by 10c

Kraton Corporation (NYSE: KRA) reported Q4 EPS of ($0.06), $0.10 worse than the analyst estimate of $0.04. Revenue for the quarter came in at $408.5 million versus the consensus estimate of $386.52 million.

OUTLOOK

Demand fundamentals in China, broader Asia and Europe weakened in the second half of 2019. In addition, the third quarter 2019 decline in gum rosin and gum turpentine pricing adversely affected product prices and margins in both our Crude Sulfate Turpentine and Tall Oil Rosin chains through the fourth quarter of 2019. We expect these demand fundamentals and market conditions to continue in 2020 and they could be further disrupted by the coronavirus outbreak.

In 2020 we expect meaningful growth in sales volume, offset by margin pressure from weaker global market conditions. In our Polymer segment, we expect sales volume for Specialty Polymers and Performance Products to increase by approximately 5% compared to 2019. In our Chemical segment we expect overall sales volume to increase by approximately 10% compared to 2019.

In addition, through the first two months of 2020 the coronavirus has resulted in further disruption of business activity and demand in China and broader Asia. At this time, it is not possible to determine the full-year 2020 impact of the coronavirus.

In light of these overall market conditions, and taking into account the expected sale of our Cariflex business in the first quarter of 2020, we currently expect our 2020 Adjusted EBITDA to fall within a range of $200 - $220 million, which outlook is based upon the following assumptions compared to 2019 results:

We anticipate that a continuation of fourth quarter 2019 market conditions in China and broader Asia and disruptions associated with the coronavirus in the first quarter of 2020 will negatively affect full-year 2020 Adjusted EBITDA by approximately $10 million. Our outlook does not include any potential incremental impact for the coronavirus beyond the first quarter of the year.
Assuming no price recovery in gum rosin and gum turpentine prices in 2020, we expect approximately $30 million of combined effect to consolidated Adjusted EBITDA , primarily in our Crude Sulfate Turpentine chains, and to a lesser extent, in our Tall Oil Rosin chain.
We expect transportation and logistics costs to increase by approximately $10 million in 2020.
Relative to full year 2019, we expect a $5 million adverse effect associated with further inventory reduction measures by a significant lubricant additive customer.
Despite a planned sales volume increase in global paving and roofing markets, we expect that margin pressures associated with a more competitive marketplace will offset volume gains.
We estimate that Cariflex contributed approximately $54 million to 2019 consolidated Adjusted EBITDA. We estimate Cariflex will contribute approximately $7 million consolidated Adjusted EBITDA prior to closing, which we anticipate in the first quarter of 2020.

Consistent with the aforementioned 2020 Adjusted EBITDA forecast range, and excluding any activity under our share repurchase authorization, we expect to reduce consolidated net debt (excluding the effects of foreign currency) by $40 - $60 million in 2020 from results of operations. We also intend to apply proceeds from the Cariflex sale principally toward debt reduction.

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

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