Tronox (TROX) Reports In-Line Q3 EPS, Revenues Beat

Tronox (NYSE: TROX) reported Q3 EPS of $0.05, in-line with the analyst estimate of $0.05. Revenue for the quarter came in at $675 million versus the consensus estimate of $635.59 million.

Third Quarter 2020 Highlights:

• Revenue of $675 million increased 17 percent sequentially on improved market demand
• Income from operations of $49 million; Net income of $902 million primarily due to the reversal of a portion of U.S. valuation allowance relating to net operating loss carryforwards resulting in a non-cash benefit of $895 million
• Adjusted EBITDA of $148 million; Adjusted EBITDA margin of 22 percent (Non-GAAP), reflecting the impact of adjusting our operations to accommodate the effects of the pandemic, partially offset by cost reductions and increased acquisition synergies
• Total year-to-date acquisition synergies of $183 million, with $134 million reflected in Adjusted EBITDA (Non-GAAP); Raising total synergy target for FY 2020 to $235 million, with $185 million to be reflected in Adjusted EBITDA (Non-GAAP)
• GAAP diluted income per share of $6.18; Adjusted diluted EPS of $0.05 (Non-GAAP)
• TiO2 sales volumes increased 16 percent sequentially, driven by improving market demand throughout the quarter, with level selling prices consistent with expectations
• Zircon sales volumes declined 15 percent sequentially as a result of shipment timing between quarters, with a 2 percent decline in selling prices driven largely by product mix
• Feedstock and other products sales increased 73 percent sequentially, primarily due to increased pig iron and CP slag sales mandated by the FTC consent order

Commenting on these results, Jeffry N. Quinn, chairman and chief executive officer, stated, "Our third quarter results continue to reflect the strength of our vertically integrated business and our ability to optimize our operations across a variety of business conditions. Utilizing our proprietary enterprise optimization capabilities, we adjusted our operations to accommodate the effects of the pandemic, which resulted in increased production costs and a slight temporary impact to margins as we foreshadowed on our second quarter earnings call. However, the strength of synergies captured and cost reductions minimized the impact on our margin profile. As the quarter progressed, we also saw a benefit from the regional diversity of our revenue profile as demand in all regions returns to more normalized levels on a staggered basis.

"The trajectory moving out of the third quarter is indicative of the improving market conditions we expect through the end of the year and into 2021. While the macro environment remains uncertain, we anticipate a favorable deviation from normal fourth quarter seasonality, resulting in strong fourth quarter TiO2 sales volumes at or above third quarter 2020 and fourth quarter 2019 levels. Additionally, as a result of shipment timing and continued recovery in end market demand, fourth quarter zircon sales volumes are expected to be the strongest of the year, improving sequentially from the third quarter in the range of 25 percent.

"Given our continued demonstration of the benefits of our vertically integrated business model, we are raising our full year 2020 synergy target to $235 million with $185 million expected to be reflected in Adjusted EBITDA. Our expectation of incremental synergy achievement combined with the strength of our commercial outlook and offsetting cost reductions should result in Adjusted EBITDA in the fourth quarter in the range of $155 to $170 million with an Adjusted EBITDA margin improvement back to first half 2020 levels.

"From a liquidity and capital resources perspective, we are pleased with how well our business is positioned despite the pandemic, attributable to the strength of our business model. As we move closer to the end of the year, we are evaluating incremental debt pay down options utilizing excess liquidity on the balance sheet to advance further towards our gross debt target of $2.5 billion."

Mr. Quinn concluded, "I am extremely proud of how focused our entire Tronox team has remained throughout the prolonged pandemic, prioritizing safety and looking out for the health and well-being of one another while continuing to deliver safe, quality, low-cost, sustainable tons for our customers. The strength in our performance speaks to the resiliency of our business and reinforces our confidence in Tronox's positioning for the recovery to come."

Fourth Quarter 2020 Outlook:

• Strong sales trends reflect a favorable deviation from typical fourth quarter seasonality; anticipate this will result in TiO2 sales volumes at or above Q3 2020 and Q4 2019
• Q4 zircon sales volume to be the strongest quarter of the year; expected to increase in the range of 25 percent sequentially
• Adjusted EBITDA outlook of $155 - $170 million and Adjusted EBITDA margin to recover to first half of 2020 levels

For earnings history and earnings-related data on Tronox (TROX) click here.

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