Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tronox Holdings PLC (TROX, Financial) delivered second-quarter performance within previously guided ranges.
- TiO2 volumes improved sequentially by 8% over Q1 and 16% year-over-year, indicating a recovery from 2023 levels.
- Free cash flow for the quarter was a positive $84 million, with expectations to continue generating positive free cash flow for the second half and full year.
- Significant progress on sustainability goals, including renewable energy contracts in South Africa converting 70% of electricity from coal-based to renewable sources by 2027.
- Revenue increased by 3% year-over-year to $820 million, driven by higher TiO2 volumes.
Negative Points
- Total pigment plant utilization rate was lower than targeted, leading to higher costs and adjusted EBITDA at the lower end of the guided range.
- Adjusted EBITDA margin was just under 20%, impacted by higher costs due to operational challenges.
- Net income attributable to Tronox was only $16 million, with a significant tax expense of $45 million driven by valuation allowances.
- TiO2 prices increased only marginally, with unfavorable mix partially offsetting the gains.
- Net leverage ratio remains high at 5.2 times on a trailing 12-month basis, indicating significant debt levels.
Q & A Highlights
Q: Can you clarify the cost impact of the ramp-up issue and whether there will be further risks as utilization rates climb?
A: The cost impact is split evenly, with $15 million in Q2 and $15 million in Q3. We are now running at an 80% utilization rate, and the issues experienced during the ramp-up have been resolved. We expect this rate to continue through the rest of the year, leading to lower costs and improved earnings momentum in Q4. (John Romano, CEO)
Q: What is the expected impact of working capital on cash flow for the rest of the year?
A: Working capital is expected to be a slight tailwind for the full year, depending on market recovery in Q3 and Q4. We are building some inventory to meet forecasted demand, and increased sales in Q1 and Q2 have driven higher accounts receivable, which will convert to cash. (D. John Srivisal, CFO)
Q: Can you explain what you mean by a "step up in earnings momentum" in Q4?
A: We expect lower costs in Q4 as we sell lower-cost inventory produced at higher utilization rates. This should result in better margins and higher earnings potential compared to Q3, despite normal seasonal fluctuations. (John Romano, CEO)
Q: What is the current status and expected impact of anti-dumping investigations in the EU, Brazil, and India?
A: The EU has imposed provisional duties on Chinese imports, leading to a significant drop in Chinese exports to the EU. We expect mid to long-term benefits if these duties become permanent. Investigations in Brazil and India are ongoing, with potential outcomes expected in late Q3 for Brazil and Q4 for India. (John Romano, CEO)
Q: What is the size of the zircon shipment that was pushed into Q3, and what factors could drive volume improvement?
A: The shipment was a couple of thousand tons. Volume improvement depends on the recovery of Chinese demand, which heavily influences the zircon market. (John Romano, CEO)
Q: How should we think about CapEx in 2025 and 2026 given the elevated spend in 2024?
A: CapEx will be lower in 2025 compared to 2024, likely in the mid-300 million range, and will continue to decrease in 2026. (D. John Srivisal, CFO)
Q: Can you explain the offset that bridges the $15 million impact from the ramp-up outage to the $6 million guide reduction?
A: The offset includes a slight increase in pricing expected throughout the quarter. (D. John Srivisal, CFO)
Q: What are your medium to long-term capital allocation priorities after the paydown of debt and mining project investments?
A: We will continue to invest in strategic projects to maintain vertical integration, focus on paying down debt to maintain liquidity, and maintain the dividend. We are also exploring opportunities in the rare earth space. (John Romano, CEO)
Q: Can you provide a better sense of underlying demand regionally and by end market?
A: Demand recovery is mixed globally. North America and Europe are seeing increased sales, while Asia Pacific, particularly India, remains strong despite increased Chinese exports. We are not yet back to normalized volume levels but are seeing significant recovery from 2023 trough levels. (John Romano, CEO)
Q: Will operating at 80% utilization rates be enough to recover the $25 million to $35 million quarterly headwinds from underutilized assets?
A: Yes, operating at 80% utilization rates should be sufficient to recover these headwinds. (John Romano, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
