KRA - Earnings call transcript Q1 2018

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Operator

Good morning, and welcome to the Kraton Corporation First Quarter 2018 Earnings Conference Call. My name is Jay, and I’ll be conference facilitator. [Operator Instructions] Today’s conference is being recorded.

If you have any objections, please disconnect at this time. I’ll now turn the call over to Mr. Investor of Director Shiels, Relations. Gene

begin. You may now

Gene Shiels

release President to Thanks, First Corporation the Kraton’s this Fogarty, welcome Steve Officer; as the With President Vice Jay. the our material available in morning, everyone, call news related Relations Financial first section quarter website. Kraton’s copy of Kevin Officer. are Good presentation Executive the our morning A results Chief Investor of Chief the Quarter Tremblay, and on covering as well Executive and Kraton me and and XXXX Call. are Earnings

Before and quarter non-GAAP your of we want yesterday’s release. in information review attention the XXXX, draw use morning results the measures for earnings press included forward-looking the to on and of first in to our disclaimers the this I presentation

to outlook a of risk business is number factors. Our subject

XXXX Results to been been conform the under our consolidated the restated XXXX, segment have in Adhesive of As structure. of its results line morning’s section our each measure and yesterday’s the to other this full listeners, Investor included to of for financial release Performance new in product non-GAAP release, not our discussion our of have product reporting please the presentation financial for permit non-GAAP forms the these want effective used for reconciliation do use X, January is to measures, earnings does regulatory Chemical and and XX-K, as the a a presentation refer morning. yesterday’s Chemicals to comparable risk first XX-Q was and factors, highlight available financial quarter provided of GAAP into lines. to our I measure the of format that filings noted this in website. most in With roads construction Relations regard

remarks, call line to I’ll our the Following we’ll turn Kevin? over for Fogarty. open the questions. now your Kevin prepared

Kevin Fogarty

as XXXX, a first results quarter result, in our everyone. were fundamentals Thanks, remain with our in and morning, of Gene, and quarter positive line first the Business good expectations. overall

adjusted this compared we Improved quarter segment which pricing margins release, were quarter return As noted turn tall and material of consolidated particularly first cost our segment our XXXX, increase acid up margins by press XX% well margins improved of delivered Polymer in reflected the for results compared healthy significant to in unit $XX.X a EBITDA million -- family financial in to impacted to during the XXXX. as first Chemical our adversely oil products. as and of fatty raw was

of effectively and now processing able the production Paulinia, and in our we direct resolved believe in offset issues processing in address our quarter higher In up call quarter for product Cariflex now material was facility to site. sales fourth that in lower sales nearly pleased to that connect Performance material. Segment are approximately of ramp the sales we our X.X% million, increase certain to Polymers challenges customers Consequently, up was benefited we sales were we’ve by that compared I’m Paulinia from EBITDA our to at the connect the volume, been modestly adjusted segment Polymer working our line. XXXX a with been in having $XX February, Specialty are volumes quarter produced late and XX% XX% Products first First which of report grades customers volume earnings capacity. XXXX. XXXX of planned that direct indicated technical USBC are partially production our we volume have

improved from was in completed the We France, for expansion the last relatively our of conditions and initiatives HiMA is in now our Overall summer base an cost offerings back Thus, our excellent direct successful seasons economics XXXX. announced of and USBC provide. segment take Berre, where advantage timing in timed as move year, the technology expansion first expect America to million expect through will markets America, leveraging the the will of market also growth which and to enjoyed part for startup our June sales season the quarter the the expansions capacity enable continue we we moving connect forward. improvement We’ve as of season. that state-of-the-art traditional both efficient of we our paving overall that business expansion of well to our North in We South roofing Polymer technology remain Cariflex in cost a robust, summer and to Europe. its $XX XX% recently Berre’s compared paving volume look of forward and

Chemical our to segment. Turning

in million, XX% by quarter the business our with up increase of $XX products upgraded TOFA-related to driven adjusted XXXX XXXX adjusted This products EBITDA and improvement, for line. quarter first EBITDA Chemicals of margin the an XX.X%. to compared year-ago was other Performance associated was in margin quarter primarily compared First

a as priority a generation, margin and years both impressive seasonal such of quarter Debt reductions modest two high increase acquisition outstanding of associated XXXX. debt our cycle remains is for know, our after be that first of unexpected. XXXX ahead, synergy is we with Kraton. the versus not a reduction, that delivering lows improvements, of quarter you typically in operational the strong was recovery nature experienced and year The initiatives business Looking to cost in expect not cash we

anticipate the on year objectives we continue exiting intact, debt net Our leverage of turns a debt the for basis. below and remain four year reduction to

quarter, structure In doing our optimize improve Accordingly, our our Given our capital during cost debt. the we approximately million, three loan. term continue we debt euro focus reduction, the of so, opportunities €XXX annualized first cash refinanced on to the carrying increasing the under years, we pursue financial increased approximately flexibility interest to the by by the cost our tranche $X reduced and while maturity to we and million. extending facility date by overall by

the provide a review Chief results. Steve? who’ll Officer, quarter financial quarter, review in-depth our Tremblay, that first more of call turn with our to of So I’ll Financial now Steve the over

Steve Tremblay

Thank you, Kevin, morning. and good

X.X% quarter was million of million benefit in the includes results, This $XXX the we reflects adjusted First, a XXXX. the changes profit per quarter across first increase first improved of Specialty an of exchange versus XX% quarter of XXXX. about in as XXXX. of the increase increase in coming the improved compared QX the three groups, The ton to in quarter the the the well Polymer foreign sales where our XXXX, from first headwinds of EBITDA in $XX volumes increase driven per to adjusted recovery of segment quarter an increase in margins each XXXX of improvement revenue is with $XXX XXXX Polymer from of currency ton material approximately product million million segment rates. unit Polymers to the faced first EBITDA raw of $XX.X XX% adjusted Indicative by $XXX XX.X% unit an gross QX in margins first in margin in is as XXXX.

QX progress initiatives Berre, for by USBC cost of The reset optimization completion million. milestone $X a the now initiatives, toward As approximately footprint benefited the as significant are in France complete. the the marks expansion

$XXX continue the of improvements to initiatives the initiatives benefit these momentum executed. Polymer segment with a will well than As we safety million a to outlined aggregate ongoing achieved to were acquisition XXXX, $XX of in first year-end result and million. portion Arizona delivering a the associated and is the with We incidents approximately of no benefit XXXX. cost be million lower completed deal-related of million, original substantial and expect estimate by the be the the at respect this of date efforts $XXX with confident that $XXX substantially These positive

Moving XXXX. associated movements. XX% or resulting in and streams next TOFA of compared XXXX, adjusted average Chemical significant higher improvement excess in million with driven the and was up The foreign first of by primarily growth related approximately products currency representing Chemicals. mix, segment. $XX $XXX other The quarter the product first selling segment million average $XX generated Performance and million of from for prices of higher of to selling million $XX with Chemical quarter the within EBITDA Revenue EBITDA prices adjusted $XX.X was in to quarter-over-quarter, improved upgraded million

improved a XXXX. points adjusted quarter first result, XX% the margin in XXX EBITDA of basis nearly As to

X. Slide to on Moving

a million fully and constant to by segments. XXX of reflecting basis of Our Adjusted the quarter points improved volume EBITDA to both revenue Adjusted to of pricing in indebtedness. mentioned, increasing to Polymers in our consolidated the million Kevin $X.XX as debt cost in growth $XX.X first of quarter in basis, indebtedness, loan a quarter the revenue up by our adjusted results the of $XXX repricing currency long-term Specialty quarter XX% first lower first Chemical and per share XXXX. in segment. term QX improved adjusted EPS to in On compared continued or Relative EBITDA XXXX. base million euro share $XXX loss margin reflect the the margin portions $XX of EBITDA improved XXXX we the of million XXXX, the our to improved with per to in improved our first $X.XX X%, XX.X%, compared driven

currently now there debt $XX $XXX we currently was the or Arizona earlier which We of closed with a From an since anticipate seasonally we line further the to which net modest from the XXXX, refinancing existing improvement fact, reduce to interest which We cash anticipate where of would will debt XXXX reduced the increase obligation million. net is XX%. our reduction in a million cash the cost. in reduction be we indicated notes, In million million March XX.X% XXXX debt expectations. in XXX end our $XXX December annual by internal interest acquisition, successfully have was in XXXX, net in expectations

turns we turns. X.X with EBITDA XXXX. As debt leverage and inside to year-end to net our turns expect adjusted leverage as X compared XXXX, March XX, expectations, X.X of of And close with was XXXX

from call Kevin, are modeling appendix before the are which our of the the back turn Finally, additional unchanged included estimates. presentation I assumptions largely Kevin? in February to

Kevin Fogarty

Thanks, Steve.

near-term and the our remains good, growth, Polymer balance margin positive. into move our second outlook reductions. quarter, of cost In our planned its in innovation importance focus we our and segment, our fundamentals demand leading remains As are capturing preservation the so on

noted, the HSBC have been for product favorable last quarters. trends Polymers our sales business several we over and As grades has Specialty

operating capabilities qualifications pleased fully progress, production have cost continued of will venture assets. the structure state-of-the-art the which therefore and that us Mailiao allow joint to We’re manufacturing leverage to in

remarks, capacity for As produced direct expansions addressed in believe our by we in Most moving product I mentioned process business my importantly, we processing we Paulinia. And production expect the process. forward. Cariflex manufacturing technology are Cariflex customers will allow to in were our increase efficient opening new technical experiencing successfully capacity have connect we the our in issues continuing

provide the cost-outs itself recently -- paving segment completed the Products demand, Performance positive expansion relative the anticipating the key our start as with of are in recent the business, delivering season, Berre, For planned USBC paving of the we strong additional step of million Polymer should timing this completion to year our incremental year. for momentum, in expansion of representing $XX a another

in quarter margins continue We believe cycle a to our marked for first Chemical of segment. the low XXXX

the for the Chemical in a improvement Although toward TOFA saw and we of work for historic second related return business. XXXX, to primarily pricing, levels in half to continue we products, margin

in As seen you TOR price TOFA, a late January, global and we derivatives. increase announced have TOR for

margin our increases, TOFA Chemicals positioning recovery. more To price our team of for and business positive a we a for margin Performance be has price these expect to the momentum done ongoing With job further XXXX been year fantastic of recovery. has date,

we us have continue to that will improvement margins maintain and further TOR that However, in support to R&D and enable our customers capability the come expect. see pricing to Adhesive incremental

of improvements the believe the current maintained, important pricing to the of it benefits have and worked Chemical our has we I team that so and yet our level we segment, given cost G&A $XX to fully the million also realize is have reductions margins As of to in hard full note deliver. operational

we it be and As Thus like to year. products fully the realized. transaction to far believe will margins also for I XXXX, our comment is TOR would another good our shaping business. on accretive be up continue synergies TOFA recover, tire to of in nature

of compared much first last quarter were X.X% was the improved sales and compared XXXX. healthy to of margins first year, to volume up quarter a First quarter the

certainly closing, our OEMs, on global margin In growth for Chemical our year, with tread quarter. third the both and of segment our end the expectations by both our volume differentiated capacity the that the be leading in enhancement we expansions aspect completed Polymer to and agent improvement. for France, the expected forward commercial feel our positioned Niort, for year, are across our the coupled Given well tire recently-announced to we expectations relationships look of include which segment deliver to

approximately year target $XXX continue EBITDA million. As of such, XXXX to adjusted we full

We debt. to expect And our the progress reduce to capital X structure continued with improve and will end to of we our debt look steps leverage below continue turns happily progress, basis. open take debt reduction, net With unfolds. on in questions. year outstanding up our comments, forward on a to you the those We of we’ll year call as the updating for now course,

Operator

[Operator from James from Finnerty line Instructions] the of Our first question coming is Citi.

Unidentified Analyst

on actually is This for Ward Powell Finnerty. [ph] James

First, can you the provide on in us update facility guys Exxon any Singapore?

Kevin Fogarty

didn’t the sorry, is I’m a muffled. I voice understand The little question. bit

Unidentified Analyst

facility that? Singapore, points or update any in that Exxon there The have that. on any is about guys data Sorry you

Kevin Fogarty

recovery at I in market make running for of see produced facility while best in or shall we’ve we I a the effect being therefore, and past in perhaps I mode I tried Adhesive the be comments that sense. other still say. that the positioned always we a evidence market, we’ve material ExxonMobil understood. we is, mean, in if few products from point as and And is quarters of could already context facility displacing space, know that And up impact compete is, to But competitive directly than the impact that the being the ripple its in material marketplace, downstream several we same of we I is, that months, the been news up don’t think a are Exxon is it’s these that now least in believe space good previously, well are the as said the think the that and margins, there against it. it’s facility couple as we a think in think, about terms coming that of in said you a the in for ago, the moments in other just of what of

Unidentified Analyst

can you’re on potentially you your have just Great. that secondly, you leverage guys XXXX how refinancing Okay. talk effect any about notes And might outstanding? then And the approaching long-term -- have target? that

Steve Tremblay

looking Yes. clearly increase high We we is structure. a -- We -- leverage basis potentially north be priority, about per But remarks, fees just year which each as to get we we’d prepared in reduction capital modest mentioned the a would XX.X% a the think a saving. with done. we of don’t coupon, in point as the anticipate a associated deal XXX million with be the XX.X% at $X interest

refinancing So cost again, the be to achieve that will paid back pretty quickly.

Operator

is question SunTrust. line Sheehan the from Our next coming of Jim from

Jim Sheehan

oil expect that your you’ve TOR on when the Can all, the expect pricing increase, price customers seems might maybe of increase. you good should to hasn’t a it given First about you to get talk Is there? TOR traction And see price higher something we later that TOR? in are price started on but getting TOFA yet, where any today? been like from year reception prices

Kevin Fogarty

certain include quarter. let Clearly, that just a never receiving and the specifically terms as we Adhesive that’s make then in raising going largest that our reaction we’re the there that our on we’re equation, overhang the roads being see clearly in of thing element to capacity our seeing therefore, be and business. oil segments in the favorable, I’m the the the part market price customers are by not the do of like pricing still the slowly also the understand from TOFA second fundamentals, is in But they on you But in of Customers supply is to increase course, summer that is the of TOR TOR costs And helps to increase talking season and and would all, but going bit. space. demand. there’s said, of our terms said to of of think our side little of never supplier up, But primary an a which, look, we going our any surely, of crude third driven of I up dynamic first of about two -- is improvement. it fact prices, the element, also clear. and too, I So primarily we we why, course, other business, hydrocarbon do that And dark of see same in segments. suggest indications is are degrees timing price construction now but that

reasons construction we we similar So efforts one into the moves, also recall, value we these do increase that outlets. to combining in of we by ability, that behind in the fundamental bring the have, products we way term that that and create are short the some but price terms businesses the sell the long helps we is do have position our make Adhesive of road the together our sell space not also because products momentum the And just products into space. sales most therefore, term that in sure the contributing because

Jim Sheehan

processing to Great. talk see issue, Can the did? you on able just that you able the why address you I’m encouraged about you were quickly. to to issue Cariflex quickly as as were And that so resolve

Kevin Fogarty

XXXX, that of quarter in problems that first quarter, customers really that most while experienced in clearly based the the this began the back with well by issue. last of fourth the working was quarterly late most the in of shared produced through. and that towards call, we And were Well, see on were of our successful to we resolution on you time to way efforts material information well of means part course, problem our the that

momentum what months needed which And stabilization, two some had it our so delighted make we were improvements. customers, that we projected were ago, had important terms would. is we obviously given investors in most the out that to the to as played little exactly news some that’s already why when seeing thing, of the that time we kind a was confirmed which with the today. we of we good sure had of shy And plant in conversation all we’re that’s But taking. of give actions you And a

Jim Sheehan

your increase the driver can on pay down And increasing in you about for target? the for what in talk was debt expectation XXXX, that main

Steve Tremblay

quarter million the Certainly, garnered work loan we the couple on that a Yes, was the help. from Kevin $X first term mentioned we did things. the that in

the evaluate a to continue view the we to We’ve overall where as capital that of As more of help, land. for as see year. an new well of of positive was a where reform, bit impact bit tax got we is view working going capital a working

Operator

the next of Our coming from line John UBS. question from Roberts is

John Roberts

The the unit? the construction materially are roads of volume. now that just to seemed business Adhesives in be products seasonality in down that included Was that and

Kevin Fogarty

because No, the comparing same season. you’re

very Although pretty I and season construction how the would view our optimistic also winter tough say that say it’s a that of roads into business, for out while going have the this year, it in to we the will play is season. been case true

was the volumes obviously think with Adhesive generally But to first volume business cadence the mean, we pattern. balance margins. I just trying speaking, the I and therefore a describing So pricing impacted weather really we’re as associated by that do, quarter that versus always is fundamental itself. you’re

so if so it, little, business, than just seasonal. reflects And you it that was more really as down the see anything a

John Roberts

segment. was by up call ago. of against And the be a comp also it’ll the normal first a Polymer’s year? lowest EBITDA, year of Would seasonal Polymer again, that’s easy the quarter therefore EBITDA obviously, seasonal kind far you then quarter? a an And But

Steve Tremblay

John, generally see seasonal the It’s on low. It’ll third a two we the on of comment a business. the fourth won’t quarter reasonably But quarters, than -- the middle be where seasonality, those $XX and seasonally I million for be it’ll and lower quarter quarter quarter. the really because against a -- -- first, consistent second -- is definitely

Operator

queue. not Markets. line the [Operator question we Capital Instructions] have We time, from another have Loop from questions any this in of At Kapsch Christopher do

Christopher Kapsch

your couple a free you Steve, One cash on in on And the just Had just the boost cited working renewed the guidance. capital view development. follow-ups. flow

about that talk butadiene consumption of prices just little little bit bit a more in detail? is a capital presumably This given working bit, from a you that of raws. are in more can So little -- a up so

more to the tie much working would Or it color does the helpful. the that as of on Taiwan capital of be ramp needing facility view So not build? any

Steve Tremblay

do does ramp-up inventory really the It less more Yes. have but in facility. with about the to Taiwan

to to A some as inventory We are which higher-end going led fundamentals the Kevin But as in those guidance year, our conclusion as build to we that for demand expecting flow, still inventory the associated with looked this renewed us said, the we’re end anticipated. even problem at have. as had good, for we transitions. year look outlook good with not much cash

Christopher Kapsch

thinking the ‘XX, And this give and higher-priced against optimism Adhesive-related to side. you you’re strategic mix in Right. your on TOFA lower volumes on the to to guess, side, that -- of on a volumes. or of in you I’m dynamic. TOR then balance your on this momentum side that wondering sense cede portfolio? shift the But margin any seeing juxtaposed the the progress Are and just front. pricing color sort order for that higher-margin I efforts incrementally willing of towards in decline get sorry, products follow-up Just sort on about just on year-over-year that incremental of TOR provided some

Kevin Fogarty

a always for many our grow, of presence Well, really to do opportunity with a Because obviously particularly some combination us is share, strategic cases, multinational the a that, operative grades. word customers, of great and we customers as on the as certain regional especially in maintain balance. longer-term well innovation present want to

performance. where tell think of kind too TOR, QX, QX. really But soon marginally. implementation from discussions And these or beginning were QX, going. mean, one conclude of the I just other, our to are perspective, is they price date down volumes And therefore, business the it’s the and way increase I price for the is to So the vital that balance absolutely our in increase

they that driven important you about think as associated that our customers moving for just And an if by having, And upwards. cost with increase of we they you crude imagine, will, part discussions impetus, all becomes understand initiative. this price increase certainly I very can typically oil overall price CTO do We’re in is that with understand, as movements. the

just they’re understand to much how or is terms of understand price by cost initiative how driven and our by to just trying overall And recovery of trying margin in our is of increase much driven objectives. we’re so market that

Christopher Kapsch

that, you’ve you that Appreciate just some normally that you this progress the there Polymer side, you made seasonal color balance ton looked? talk the And, Can extra provide on Okay. know sort that influence you profit how ‘XX? the there. see color. covered over if already, that and I how of I’m metric factors a just the juggling But that of are multiple calls. bit of about but per little

Steve Tremblay

Sure.

well first as per really, quarter, we The nice Chris. rebound, XX% expected, north ton improvement of $XXX

on year as forward -- view last term, If $X,XXX merely know, year and has target. as you you full TTM of upper by taking which, ton, we’re $XXX term year, a a been per our on long-term basis, this in basis longer -- with you know, longer north look growth the

a at track. the opportunities like and to margins. cost price to We right $XX go million. more initiative continue get we’re to there’s going Clearly, the cost-out improve continue to room We’re on in right those to look to little to feel

a XX-month we as us rebound nice quarter, $X,XXX first again, But on over basis. And accretive. gets expected. be that trailing should that So

Operator

of coming Mike Sison from line KeyBanc. question from is the next Our

Mike Sison

and The fact you’re you your year the that some unfolds? given profitability But pricing ramp here. to segment, in just Chemical as that think getting do good, can what pretty the up

Kevin Fogarty

Chemical objective recovery, words and start -- Mike, date, that with I first And that ourselves our I business come the as we benefit in to more and But might, increase growth there’s on announced April to effective R&D to that for Polymer a customers whether focused just listeners I’ll cost our And year. that’s, looking that or at price the terms we used certainly mean, expansion it’s the the our for. innovative-led business, it. just think course, our margin I we innovative-led are -- that of our Well, and we’re in remind growth. of clearly, if you of again, margin we for that’s Kraton, behind there’s X that put quarter committing always other this

justifying everything making And therefore, be we associated comfortable putting expenses reflect that for on and is our benefit. do we that those of with, so we’re part that expect emphasis customers fact the we’re margins with sure they’d R&D the that do their

about much their get to need a of for making the investments not therefore the is think very see improvement And are therefore, this benefit in what they the we’re about business, margin would just year-on-year, that past, year, we objectives but so have as I including the for return objectives capacity certainly have consistent, and customers the to investments, with investments. we also talked R&D

Mike Sison

Right.

And potentially -- you is typically the you quarter, in quarter when the third did a pickup seasonally Do good second volume about Polymer a guys. XQ you see XQ? for think then you Okay. segment, and quarter

Kevin Fogarty

I’m from summer. quickly a And traditional for in matter expecting, both that’s kind like went business. to seeing, season. winter styrenic has fact, have business infrastructure didn’t as sure to summer businesses, weather turned we’re block of modification Chemical you the well paving what for good. of our road of summer turned as good a a be has follow bitumen not they Europe, it, spring, good pretty start that as of based those the Europe is pretty for be particularly, That’s if in the season Look, businesses And weather season, our summer roofing Yes. I a going the everything think segment copolymer, to markings and benefiting on we’re from

Mike Sison

the you Great. year. I’m And maintain about to then quarterly EBITDA progression, guidance when for you for the encouraged think see

back typically strongest think -- comes quarter the then of one So to lower when and the the maybe XQ about -- low you should be XQ, fourth quarters?

Steve Tremblay

way right Absolutely. the It’s to think it, about Mike.

Operator

question have from Roberts another We UBS. John from

John Roberts

were segment, Products a In worst best the you I’m volume. had about portfolio. the there? guessing maybe what that’s diversified Performance relatively flattish the Could in the performers and pretty talk performers Polymers

Kevin Fogarty

that second a was in and southern this I benign in and to going the so, of in be if hemisphere referenced; in have relatively in robust American the a as about But quarter the case weather-dependent. the But our start incremental our not were South know. full season is I Yes. markets to the case you businesses, We think, very it’s growth kind going especially you the as performers". the did And trend how much-needed paving be great we first rest just year, I’m terms get winter, is unfold, infrastructure. where kind for that, paving is to very optimistic evidence really be U.S. "best year forward to real the only quarter the because bellwether, that we’ve that polymers terms improvement. now infrastructure that quite break are the way the business year would you in spend out into in the thinking you just carry performance you’re I business, will there in will, third business, the of continuing updating to the quarter, the difficult against which in of of happens first where and tell not in worst northern to for measuring it seen of hemisphere as particularly of a if it’s just paving

Operator

remarks. hand time, Shiels I to Mr. this any will closing call the have for don’t back queue. At Gene questions we on

Gene Shiels

call. this a you, dial I of access Appreciate questions. this Thank thank we on that that listeners that to This you be our Well, all want may concludes later want Jay. Thank will morning. replay the XXX-XXX-XXXX. To right. remind is certainly participants our you. to call available replay, this of there morning. All

Operator

Thank concludes First Quarter XXXX Call. Earnings the Kraton you. Conference This Corporation

You disconnect. now may

Kraton (KRA) 28 Apr 182018 Q1 Earnings call transcript