HOUSTON, Oct. 10, 2019 /PRNewswire/ -- Kraton Corporation
(NYSE: KRA) ("Kraton" or the "Company") today provided an update on
its expectations for the third quarter of 2019. The Company expects
third quarter 2019 net income to be approximately $21 million and third quarter Adjusted EBITDA to
be approximately $80 million. During
the quarter, consolidated debt decreased by approximately
$61 million (consolidated net debt
decreased by approximately $81
million). In addition, the Company announced that it has
scheduled a conference call on Thursday,
October 24, 2019 at 8:00 a.m. Central
time (9:00 a.m. Eastern time)
to discuss third quarter 2019 financial and operating results. The
Company expects to release its third quarter 2019 results after
market close on Wednesday, October 23,
2019.
"Despite opening our third quarter in July with stable market
indications, fundamentals including demand in China and broader Asia, and more recently in Europe and North
America, weakened notably as the third quarter of 2019
progressed. This adversely impacted results for both our Polymer
and Chemical segments," said Kevin M.
Fogarty, Kraton's President and Chief Executive Officer.
Continued deterioration in market demand in China and Asia associated with ongoing trade tensions
and the impact of tariffs, as well as weakening demand in
Europe, particularly for
automotive and compounding applications, impacted sales of HSBC
product grades for the Company's Polymer segment during the third
quarter of 2019. In addition, results for the Polymer segment were
affected by soft paving and roofing demand, reflecting elevated
customer inventories following a weak second quarter 2019 and ample
supply availability from market participants, which contributed to
intensified competitive market conditions.
During the third quarter of 2019, the Chemical segment was
adversely impacted by an accelerated decline in pricing for certain
upgraded products in its Crude Sulfate Turpentine chain, in
conjunction with the decline in global gum turpentine pricing,
which fell by over forty percent during the quarter. The Company
also saw weaker demand and pricing in rosin end markets such as
adhesives and road marking. This was related to increased softness
in gum rosin pricing, which declined by over twenty percent in the
third quarter of 2019.
Given the impact of the foregoing market factors, the Company
expects third quarter 2019 Adjusted EBITDA to be approximately
$80 million, and based upon its
expectation that market conditions will not improve for the balance
of the year, the Company now expects full year 2019 Adjusted EBITDA
to be 10-15% below the lower end of its previous guidance range of
$370 to $390
million.
"In response to what is now a more broad-based global economic
slowdown, which we feel is unlikely to reverse course for the
balance of 2019, we have taken proactive measures on cost
management, cash flow optimization and capital allocation. Despite
the weaker than expected operating results in the third quarter of
2019, consolidated net debt decreased by approximately $81 million, or $52
million excluding the effect of foreign currency. This
reduction is indicative of the strong cash flow generation profile
of our business. With regard to the strategic review of our
CariflexTM business, the process is still ongoing, and
we are targeting completion of the review process within the next
few weeks," added Fogarty.
CONFERENCE CALL INFORMATION
The Company has scheduled a conference call on Thursday, October 24, 2019 at 8:00 a.m. Central time (9:00 a.m. Eastern time) to discuss third quarter
2019 financial and operating results.
Kraton invites you to listen to the conference call, which will
be broadcast live over the internet, at
http://www.Kraton.com by selecting the "Investor Relations"
link at the top of the home page and then selecting "Events" under
"Company" on the Investor Relations page. Company spokespeople will
include Kevin M. Fogarty, President
and Chief Executive Officer; Atanas H.
Atanasov, Senior Vice President and Chief Financial Officer;
and H. Gene Shiels, Director of
Investor Relations. You may also listen to the conference call by
telephone by contacting the conference call operator 5-10 minutes
prior to the scheduled start time and asking for the Kraton
Conference Call - Passcode: "Earnings Call." Toll Free dial-in is:
800-857-6511. International dial-in is: 210-839-8886.
A replay of the earnings call will be available through
12:00 p.m. Central Time on
November 25, 2019. To access the
replay on Kraton's website, select the "Investor Relations" link at
the top of the Kraton home page; navigate to "Events" under
"Company" on the Investor Relations page. Select Past Events, then
"Q3 2019 Kraton Corporation Earnings Conference Call." To hear a
telephonic replay of the call, dial 866 480-3547 (Toll-Free) or 203
369-1551 (Toll).
ABOUT KRATON
Kraton Corporation (NYSE "KRA") is a leading global specialty
chemicals company that manufactures styrenic block copolymers,
specialty polymers and high-value performance products primarily
derived from pine wood pulping co-products. Kraton's polymers are
used in a wide range of applications, including adhesives,
coatings, consumer and personal care products, sealants and
lubricants, and medical, packaging, automotive, paving and roofing
products. As the largest global provider in the pine chemicals
industry, the company's pine-based specialty products are sold into
adhesives and tire markets, and it produces and sells a broad range
of performance chemicals into markets that include fuel additives,
oilfield chemicals, coatings, roads, construction, metalworking
fluids and lubricants, inks and mining. Kraton offers its products
to a diverse customer base in numerous countries worldwide. Kraton,
the Kraton logo and design, and Cariflex are all trademarks of
Kraton Corporation or its subsidiaries or affiliates.
FORWARD LOOKING STATEMENTS
Some of the statements and information in this press release
contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. This press
release includes forward-looking statements that reflect the
Company's beliefs, expectations and current views with respect to,
among other things, its financial condition, financial performance
and other future events or circumstances. Forward-looking
statements are often identified by words such as "outlook,"
"believes," "target," "estimates," "expects," "projects," "may,"
"intends," "plans," "on track," "anticipate," the negative of such
words or similar terminology, and include, but are not limited to,
Kraton's expectations with respect to: net income and Adjusted
EBITDA results for the third quarter of 2019, Adjusted EBITDA for
full year 2019, the impacts of certain actions on cost management,
cash flow optimization and capital allocation, and the targeted
completion of our strategic review for the Cariflex business.
All forward-looking statements in this press release are made
based on management's current expectations and assumptions, which
are subject to known and unknown risks, uncertainties and other
important factors that could cause actual results to differ
materially from those expressed in forward-looking statements.
These risks and uncertainties are more fully described in the
Company's latest Annual Report on Form 10-K, including but not
limited to "Part I, Item 1A. Risk Factors" and "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations" therein, and in the Company's other filings
with the Securities and Exchange Commission (the "SEC"), and
include, but are not limited to, risks related to: the timing, cost
and impact of capacity expansions at Kraton's facilities; Kraton's
reliance on third parties for the provision of significant
operating and other services; conditions in, and risk associated
with operating in, the global economy and capital markets;
fluctuations in raw material costs; natural disasters and weather
conditions; limitations in the availability of raw materials; and
other factors of which Kraton is currently unaware, deems
immaterial or are outside Kraton's control. In addition, to the
extent any inconsistency or conflict exists between the information
included in this press release and the information included in our
prior releases, reports or other filings with the SEC, the
information contained in this press release updates and supersede
such information. The Company believes its expectations and
assumptions are reasonable, but there can be no assurance that the
expectations reflected herein will be achieved. Accordingly,
readers are cautioned not to place undue reliance on
forward-looking statements. Forward-looking statements speak only
as of the date they are made, and the Company assumes no obligation
to update such information in light of new information or future
events.
NON-GAAP INFORMATION
This press release contains information regarding the Company's
Adjusted EBITDA and consolidated net debt, which are non-GAAP
financial measures made available as a supplement, and not an
alternative, to the results provided in accordance with generally
accepted accounting principles in the
United States of America ("GAAP"). These non-GAAP financial
measures have limitations as analytical tools and in some cases can
vary substantially from other measures of our performance. You
should not consider them in isolation, or as a substitute for
analysis of our results under U.S. GAAP in the United States.
Adjusted EBITDA: For our consolidated results, EBITDA
represents net income (loss) before interest, taxes, depreciation,
and amortization. We prepare Adjusted EBITDA by eliminating from
EBITDA the impact of a number of items we do not consider
indicative of our on-going performance, including the spread
between the first-in, first-out ("FIFO") basis of accounting and
estimated current replacement cost ("ECRC"), but you should be
aware that in the future we may incur expenses similar to the
adjustments in this presentation. Among other limitations, Adjusted
EBITDA does not: reflect the significant interest expense on our
debt or reflect the significant depreciation and amortization
expense associated with our long-lived assets; and Adjusted EBITDA
included herein should not be used for purposes of assessing
compliance or non-compliance with financial covenants under our
debt agreements. Other companies in our industry may calculate
Adjusted EBITDA differently than we do, limiting its usefulness as
a comparative measure. Our presentation of Adjusted EBITDA should
not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. In addition, due to
volatility in raw material prices, Adjusted EBITDA may, and often
does, vary substantially from EBITDA and other performance
measures, including net income calculated in accordance with U.S.
GAAP.
Consolidated Net Debt: We define consolidated net debt as
Kraton debt plus debt of KFPC less Kraton and KFPC's cash and cash
equivalents. Management uses consolidated net debt to determine our
outstanding debt obligations that would not readily be satisfied by
its cash and cash equivalents on hand. Management believes that
using consolidated net debt is useful to investors in determining
our leverage since we could choose to use cash and cash equivalents
to retire debt.
We have not reconciled full year 2019 Adjusted EBITDA guidance
to full year 2019 net income (loss) guidance 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. The actual amount of such reconciling items will have a
significant impact if they were included in our Adjusted EBITDA.
Accordingly, a reconciliation of the non-GAAP financial measure
guidance to the corresponding U.S. GAAP measures is not available
without unreasonable effort.
KRATON
CORPORATION
RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND
OPERATING INCOME TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
(In thousands)
|
|
|
Three Months Ended
September 30, 2019
|
|
Polymer
|
|
Chemical
|
|
Total
|
|
(In
thousands)
|
Net income
attributable to Kraton
|
|
|
|
|
$
|
18,178
|
|
Net income
attributable to noncontrolling interest
|
|
|
|
|
2,931
|
|
Consolidated net
income
|
|
|
|
|
21,109
|
|
Add
(deduct):
|
|
|
|
|
|
Income tax
expense
|
|
|
|
|
2,117
|
|
Interest expense,
net
|
|
|
|
|
19,214
|
|
Earnings of
unconsolidated joint venture
|
|
|
|
|
(102)
|
|
Other
expense
|
|
|
|
|
381
|
|
Operating
income
|
$
|
18,269
|
|
|
$
|
24,450
|
|
|
42,719
|
|
Add
(deduct):
|
|
|
|
|
|
Depreciation and
amortization
|
14,982
|
|
|
19,822
|
|
|
34,804
|
|
Other income
(expense)
|
(502)
|
|
|
121
|
|
|
(381)
|
|
Earnings of
unconsolidated joint venture
|
102
|
|
|
—
|
|
|
102
|
|
EBITDA (a)
|
32,851
|
|
|
44,393
|
|
|
77,244
|
|
Add
(deduct):
|
|
|
|
|
|
Transaction,
acquisition related costs, restructuring, and other costs
(b)
|
1,672
|
|
|
(4,357)
|
|
|
(2,685)
|
|
Hurricane related
costs (c)
|
—
|
|
|
2,220
|
|
|
2,220
|
|
Hurricane
reimbursements (d)
|
—
|
|
|
(13,841)
|
|
|
(13,841)
|
|
KFPC startup costs
(e)
|
3,019
|
|
|
—
|
|
|
3,019
|
|
Non-cash compensation
expense
|
2,659
|
|
|
—
|
|
|
2,659
|
|
Spread between FIFO
and ECRC
|
10,103
|
|
|
1,337
|
|
|
11,440
|
|
Adjusted
EBITDA
|
$
|
50,304
|
|
|
$
|
29,752
|
|
|
$
|
80,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included in EBITDA is
a $14.3 million gain on insurance, a reimbursement for a portion of
the direct costs we have incurred to date related to Hurricane
Michael. Our direct costs incurred to date have now been fully
reimbursed by insurance proceeds.
|
(b)
|
Charges related to
the evaluation of acquisition transactions, severance expenses, and
other restructuring related charges.
|
(c)
|
Incremental costs
related to Hurricane Michael, which are recorded in cost of goods
sold. As we finalized our claim for reimbursement of incremental
costs incurred, we have identified an additional $1.4 million of
costs incurred during the nine months ended September 30, 2019.
Additionally, we incurred direct costs due to the impacts of
Hurricane Dorian of $0.8 million which are recorded in cost of
goods sold. These direct costs are limited to the three months
ended September 30, 2019 and will not continue into the fourth
quarter of 2019.
|
(d)
|
Reimbursement of
incremental costs of related to Hurricane Michael, which is
recorded in gain on insurance proceeds.
|
(e)
|
Startup costs related
to the joint venture company, KFPC.
|
KRATON
CORPORATION
RECONCILIATION OF KRATON DEBT TO CONSOLIDATED NET DEBT
(Unaudited)
(In thousands)
|
|
|
September 30,
2019
|
|
June 30,
2019
|
|
December 31,
2018
|
|
(In
thousands)
|
Kraton
debt
|
$
|
1,401,027
|
|
|
$
|
1,456,625
|
|
|
$
|
1,441,614
|
|
KFPC(1)(2)
loans
|
104,328
|
|
|
109,931
|
|
|
125,501
|
|
Consolidated
debt
|
1,505,355
|
|
|
1,566,556
|
|
|
1,567,115
|
|
|
|
|
|
|
|
Kraton
cash
|
77,047
|
|
|
58,650
|
|
|
79,251
|
|
KFPC(1)
cash
|
6,213
|
|
|
5,204
|
|
|
6,640
|
|
Consolidated
cash
|
83,260
|
|
|
63,854
|
|
|
85,891
|
|
|
|
|
|
|
|
Consolidated net
debt
|
$
|
1,422,095
|
|
|
$
|
1,502,702
|
|
|
$
|
1,481,224
|
|
|
|
|
|
|
|
Effect of foreign
currency on consolidated net debt
|
32,331
|
|
|
3,800
|
|
|
|
Consolidated net debt
excluding effect of foreign currency program
|
$
|
1,454,426
|
|
|
$
|
1,506,502
|
|
|
|
Effect of share
buyback program
|
(10,000)
|
|
|
(5,000)
|
|
|
|
Consolidated net debt
excluding effect of foreign currency and share buyback
program
|
$
|
1,444,426
|
|
|
$
|
1,501,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Kraton Formosa
Polymers Corporation (KFPC) joint venture, located in Mailiao,
Taiwan, which we own a 50% stake in and consolidate within our
financial statements.
|
(2)
|
KFPC executed
revolving credit facilities to provide funding for working capital
requirements and/or general corporate purposes. These are in
addition to the 5.5 billion NTD KFPC Loan Agreement.
|
FOR FURTHER INFORMATION
H. Gene Shiels
281-504-4886
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SOURCE Kraton Corporation