Chemours earnings drop on titanium dioxide, fluoroproducts weakness

17:27 PM | November 5, 2019 | Robert Westervelt

Chemours reported net income of $76 million, down 72% year on year (YOY) because of weaker titanium dioxide (TiO2) and fluoroproducts volumes. Sales were down 15% to $1.39 billion. Reported adjusted earnings of 59 cents/share were down 60% YOY, but 3 cents above analyst estimates. 

Chemours expects soft economic conditions heading into 2020. “We are anticipating continued pressure on the macros,” Chemours president and CEO Mark Vergnano tells CW. “I think the trade issues between the US and China are causing people to hold off on capital expenditures. There's a lot of uneasiness. China continues to be weak, which really drives weakness across all of Asia.”

Chemours’s titanium technologies, or TiO2, segment posted adjusted EBITDA of $248 million, down 49% YOY on 20% lower volumes and fixed-cost underabsorption. Net sales were $791 million, down 22%. Chemours says TiO2 volumes were up 10% sequentially as buying patterns stabilized and global average selling prices were largely stable. 

TiO2 markets have been significantly weaker than expected in 2019. “We've probably had one of the most significant destocking events of the last 20 years, primarily driven off of very weak Asia demand,” Vergnano said. Chemours also recently launched a “value stabilization” strategy in TiO2 designed to place volumes under longer-term supply agreements that incorporate a more stable pricing model based by global inflationary index and end-use value. “We're instituting a very different way of buying TiO2 and we also go into a weak market at the same time. The result has been loss of market share beyond what we had anticipated,” Vergnano said. 

Volumes are stabilizing, however, and the company has seen some growth with the launch of an online sales portal. “We’ve gained some share back in the quarter with a sequential volume increase of about 10% in the third quarter, compared with what is usually a decline versus the second quarter,” Vergnano says. The plastics segment has been one of the strongest performers.

TiO2 volumes are likely to remain flat until there is some economic recovery. “Because inventory levels are so low throughout the entire chain, we believe once demand does start improving there will be a very quick pull from the market,” Vergnano said. “We anticipate a rebound coming off of that.”  

The fluoroproducts segment's adjusted EBITDA of $122 million decreased 33% YOY, primarily because of lower net sales and lower F-gas quota sales. Segment net sales were $636 million, down 7%. Volume was down 2% and pricing fell 4% YOY. “The continued impact of illegal imports of hydrofluorocarbons (HFC) refrigerants into the EU, softer base refrigerants demand, and macroeconomic weakness more than offset the positive impact of adoption of Opteon mobile refrigerants and the increased sales of high-grade fluoropolymers, Chemours said. “We believe that illegal imports now constitute between 2030% of the total volume of the F-gas quota.” Vergnano says. Chemours estimates the impact on its EBITDA this year will be $125 million. 

The chemical solutions adjusted EBITDA of $23 million decreased 4% YOY, with lower prices partially offset by increased other income from licensing agreements. Segment net sales in the third quarter were $140 million, down 10% primarily driven by mix and lower cost pass-throughs in performance chemicals and intermediates. 

Chemours expects softer economic activity into 2020, but is monitoring trade and other issues, which could change the dynamics. “We're not anticipating a recession, we just think it's going to be low growth,” Vergnano said. “Our planning is to hunker down a bit from a cost perspective and make sure we are smart around what we can control going forward and focusing on the product lines that we know we can grow.”

Vergnano notes that manufacturing has been weak. “I think we've been in a bit of an industrial recession, if you will, for a while now,” Vergnano says. “I don't think though overall economy is heading into recession, but I think we're in a slow-growth environment until people get some confidence.”