Kraton Corporation (KRA) Misses Q3 EPS by 27c, Offers Outlook

Kraton Corporation (NYSE: KRA) reported Q3 EPS of $1.02, $0.27 worse than the analyst estimate of $1.29. Revenue for the quarter came in at $523.1 million versus the consensus estimate of $537.68 million.

OUTLOOK

Our expectations for the fourth quarter of 2018 are tempered by our outlook for global demand fundamentals, including the impact of tariffs and ongoing trade negotiations with China. In addition, we expect headwinds associated with inflation in transportation and logistics costs to continue for the balance of the year. Our fourth quarter results will also reflect the impact of a production outage at our Wesseling, Germany, plant associated with unusually low water levels on the Rhine River, which are currently limiting our access to raw materials. While resolution of raw material access is ultimately a function of weather, we are working with our suppliers to arrange possible alternatives, and at this time we are anticipating that production in Wesseling may be curtailed by approximately three weeks.

As previously disclosed, our refinery in Panama City, Florida, was impacted by Hurricane Michael. We do carry appropriate levels of property, casualty, and business interruption insurance. However, at this time we cannot estimate a timeframe for the plant to resume full operations, nor can we estimate the costs associated with the outage or the timing associated with incurrence of costs relative to receipt of insurance proceeds.

In light of our third quarter results, and given near-term uncertainty associated with global demand fundamentals and other factors noted, we now expect our full year 2018 Adjusted EBITDA to be approximately $380 million. With regard to our 2018 debt reduction target, we now expect to reduce consolidated net debt (total debt less cash), by $50 to $60 million. Our expectation for 2018 Adjusted EBITDA and reduction in consolidated net debt excludes any fourth quarter 2018 impact associated with the Panama City, Florida, outage or any incremental impact related to our Wesseling outage, should startup be later than we currently estimate.

We have not reconciled Adjusted EBITDA guidance to net income (loss) because we do not provide guidance for net income (loss) or for items that we do not consider indicative of our on-going performance, including, but not limited to, transaction costs and production downtime, as certain of these items are out of our control and/or cannot be reasonably predicted. We have not reconciled consolidated net debt guidance to debt due to high variability and difficulty in making accurate forecasts and projections that are impacted by future decisions and actions. The actual amount of such reconciling items will have a significant impact if they were included in our Adjusted EBITDA and net debt. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding U.S. GAAP measures is not available without unreasonable effort.

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

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