Second Quarter 2020 and Other Highlights

• Net loss of $128 million and diluted EPS of ($3.36), inclusive of a $6 million pre-tax charge related to corporate restructuring costs; Adjusted EPS* of ($2.95)
• Adjusted EBITDA* of negative $8 million, including a $43 million unfavorable impact from net timing and a $60 million to $65 million unfavorable impact from COVID-19
• Continued liquidity-focused actions in response to COVID-19 including reduced capital spending, operating expenses, and working capital which resulted in second quarter cash from operations of $82 million, Free Cash Flow* of $58 million, quarter-ending cash and cash equivalents of $582 million, and Liquidity* of $953 million

BERWYN, Pa.–(BUSINESS WIRE)– Trinseo (NYSE: TSE):

		Three Months Ended
		June 30,
$millions, except per share data		2020			2019
Net Sales		$	570		$	952
Net Income (Loss)			(128)			28
EPS (Diluted) ($)			(3.36)			0.68
Adjusted Net Income (Loss)*			(113)			41
Adjusted EPS ($)*			(2.95)			0.99
EBITDA*			(17)			88
Adjusted EBITDA*			(8)			103

*For a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted Net Income, all of which are non-GAAP measures, to Net Income, as well as a reconciliation of Free Cash Flow, Adjusted EPS, and Liquidity, see Notes 2 and 3 to the financial statements included below.

Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, today reported its second quarter 2020 financial results.

Commenting on the Company’s second quarter performance, Frank Bozich, President and Chief Executive Officer of Trinseo, said, “I am very proud of our employees as we continue to work safely to meet customer demand and adapt to challenging market conditions. Despite a historically low-demand environment, we achieved strong cash generation and quarter-ending liquidity by closely managing costs and working capital levels.”

Net sales of $570 million in the second quarter decreased 40% versus prior year. The decline in sales was split between lower sales volume and lower pricing from the pass through of lower raw material cost. Lower sales volume was a result of COVID-19 impacts, and was mainly in the Performance Plastics and Synthetic Rubber segments resulting from reduced sales in automotive and tire applications. Second quarter net loss of $128 million was $156 million below prior year net income while second quarter Adjusted EBITDA of negative $8 million, including an unfavorable net timing impact of $43 million, was $111 million below prior year. Lower year-over-year profitability was due mainly to the decline in sales volume as well as unfavorable net timing; these impacts were partially offset by lower fixed cost spending and utility costs. The COVID-19 pre-tax impact on profitability was approximately $60 million to $65 million in the second quarter and approximately $65 million to $70 million year-to-date.

Cash provided by operating activities for the second quarter was $82 million and capital expenditures were $24 million, resulting in Free Cash Flow for the quarter of $58 million. This reflected a $131 million decrease across accounts receivable, inventory, and accounts payable as a result of lower raw material prices as well as inventory reduction initiatives. The cash balance at the end of the quarter was $582 million. For a reconciliation of Free Cash Flow to cash provided by operating activities, see Note 3 below.

Bozich continued, “During the second quarter we observed significant volume declines from COVID-19, with trough conditions in April, most markedly in applications supporting automotive, tires, graphical paper and textiles. However, we saw significant end-market improvement as the quarter progressed, particularly in June, and this gives us confidence that the worst demand impacts from COVID-19 are behind us.”

Second Quarter Results and Commentary by Business Segment

• Latex Binders net sales of $165 million for the quarter decreased 28% versus prior year due mainly to the pass through of lower raw material costs as well as lower sales volume to graphical paper and textile applications as demand was impacted by COVID-19. Adjusted EBITDA of $17 million was $4 million lower than prior year mainly from lower sales volume which was partially offset by lower fixed and utility costs. Year-to-date sales volume to CASE applications increased 3% in comparison to prior year.

• Synthetic Rubber net sales of $36 million for the quarter decreased 68% versus prior year. Lower sales volume, caused by weaker demand in the global tire market due to COVID-19, contributed to a 56% decline in net sales, with the remainder due mainly to raw material cost pass through. Adjusted EBITDA of negative $28 million, which included a $15 million unfavorable net timing impact, was $41 million below prior year due mainly to lower sales volume and net timing.

• Performance Plastics net sales of $189 million for the quarter decreased 46% versus prior year. COVID-19 caused significant volume headwinds in automotive applications as many customers in Europe and North America shut down production in the first half of the quarter, which contributed to a 33% volume-related decline in net sales. Automotive applications have historically made up approximately 40% of Performance Plastics net sales. Adjusted EBITDA of negative $6 million included a $15 million unfavorable impact from net timing. This result was $40 million lower than prior year due to lower sales volume and net timing, which were partially offset by lower fixed costs. Year-to-date sales volume to Engineered Materials applications decreased approximately 12% in comparison to prior year.

• Polystyrene net sales of $156 million for the quarter were 25% below prior year. Lower pricing from the pass through of lower raw material costs negatively impacted net sales by 39%. This was partially offset by higher sales volume in Europe from prior year destocking and higher demand to essential applications such as packaging and appliances in the current year. Adjusted EBITDA of $15 million was $1 million lower than prior year as higher sales volume was more than offset by unfavorable net timing and lower fixed cost absorption.

• Feedstocks net sales of $24 million for the quarter were 57% below prior year due to lower styrene pricing as well as lower styrene-related sales volume. Adjusted EBITDA of negative $4 million, which included an unfavorable net timing impact of $8 million, was $3 million lower than prior year as unfavorable net timing variance was partially offset by lower fixed costs and higher styrene production.

• Americas Styrenics Adjusted EBITDA of $14 million for the quarter was $26 million below prior year due mainly to lower styrene margins in North America as well as volume-related impacts from COVID-19.

Outlook

Commenting on the outlook for the remainder of 2020, Bozich said, “As the second quarter progressed we saw improved demand across many of the applications we serve, and so far in the third quarter we are seeing this momentum continue. While we are seeing significant improvement, the rate of recovery remains unknown. Regardless, we’ve taken actions to reduce operating costs and maximize liquidity and we will continue to manage this closely given the market uncertainty. In addition, we will continue to invest in the higher growth applications we previously outlined – CASE, Engineered Materials, and SSBR – so that we are better positioned to accelerate growth and cash generation.”

Source: Trinseo

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