Orion Engineered Carbons S.A., a global supplier of specialty and high-performance carbon black, today announced financial results for the third quarter ended September 30, 2020.
Third Quarter 2020 Highlights
- Continued focus on protecting employees, maintaining agile production and managing costs.
- Benefited from a pronounced sequential demand surge.
- Net sales of $282.0 million compared to $370.2 million in the third quarter of 2019 reflecting the impact of passing through lower feedstock costs and of the COVID-19 induced global economic downturn.
- Net income of $9.0 million and basic EPS of $0.15 compared to net income of $24.3 million and $0.40 in the third quarter of 2019.
- Adjusted EBITDA1 of $55.0 million compared to $68.1 million in the third quarter of 2019.
- Adjusted Net Income1 of $20.6 million and Adjusted EPS1 of $0.34 compared to Adjusted Net Income of $31.1 million and Adjusted EPS of $0.52 in the third quarter of 2019.
1 See below for a reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures
“Our business and financial results made a sharp recovery from the historic low volumes in the prior quarter and demonstrate the resilience of our business. I commend the Orion team on managing the recent surge in demand while maintaining a safe working environment amid the ongoing global pandemic. Our rubber business recovered to 91 percent of prior year levels, with improved pricing. Our specialty business achieved a remarkable rebound in the quarter with volume level tracking at 97 percent of prior year levels, with positive pricing being offset by mix,” said Corning Painter, Chief Executive Officer.
Mr. Painter continued, “This quarter we celebrated 125years of innovation at our facility in Cologne, which is the largest specialty carbon black plant in the world. While the current economic downturn is our first opportunity since going public to demonstrate our resiliency, this plant has been through much more challenging situations over the years and is another indication of the durability of our business. As demand continues to recover, we will continue to focus on increasing shareholder value by serving our customers, increasing efficiency, advancing our sustainability goals, supporting the communities we serve and positioning the company to emerge stronger from the current downturn.”
Third Quarter 2020 Overview
|ORION ENGINEERED CARBONS|
|(In millions, except per share data or stated otherwise)||Q3 2020||Q3 2019||Y/Y Change in %|
|Income from operations (EBIT)||24.1||38.4||(37.1)%|
|Contribution Margin per metric ton||498.6||527.9||(5.6)%|
|Basic EPS (1)||0.15||0.40||(0.25)|
|Adjusted EPS (2)||0.34||0.52||(0.18)|
|(1)||Basic EPS calculated using net income and weighted number of shares outstanding in the respective quarter.|
|(2)||Adjusted EPS is calculated by dividing Adjusted Net Income by the weighted average number of shares outstanding in the respective quarter. Adjusted Net income excludes certain non-cash items such as foreign exchange rate impacts and long term incentive plan expenses, and non-recurring items which we do not believe are indicative of our core operating performance such as restructuring and EPA-related expenses. The reconciliation of Adjusted EPS is provided in the Reconciliation of Non-GAAP Financial Measures of the Press Release.|
Volumes declined by 7.6% year over year, with lower demand in both segments and in all regions, primarily driven by the global economic downturn, and rose 51.0% sequentially, as end markets partially recovered.
Net sales declined by $88.2 million, or 23.8%, year over year, to $282.0 million, driven primarily by the effects of passing on lower feedstock costs to customers and, to a lesser extent, lower volumes.
Income from operations was $24.1 million compared to income from operations of $38.4 million in the third quarter of 2019, primarily driven by lower end market demand due to the global economic downturn.
Lower volume drove a decline in net income to $9.0 million, compared to net income of $24.3 million in the third quarter of the prior year.
Contribution Margin declined by $17.2 million, or 12.7%, to $118.2 million, year over year, primarily driven by less volume, unfavorable mix and the effects of passing through lower feedstock costs, partially offset by base price increases.
Adjusted EBITDA declined by $13.1 million, or 19.2%, to $55.0 million, year over year, primarily due to lower volume and less favorable mix, partially offset by base price increases primarily in the Rubber segment.
Quarterly Business Segment Results
|SPECIALTY CARBON BLACK|
|(In millions, unless stated otherwise)||Q3 2020||Q3 2019||Y/Y Change in %|
|Gross Profit per Metric Ton||631.6||685.4||(7.8)%|
|Adjusted EBITDA/metric ton||450.5||496.3||(9.2)%|
|Adjusted EBITDA Margin (%)||25.5||24.4||110bps|
Specialty Carbon Black volumes declined by 2.6%, year over year, primarily in North America and EMEA, and rose 18.8%, sequentially, as end markets partially recovered.
The pass through of lower feedstock costs and lower volumes drove net sales down by $19.2 million, or 15.6%, to $103.6 million, and gross profit down by $4.2 million, or 10.3%, to $37.1 million, year over year.
Specialty Adjusted EBITDA declined by $3.5 million, or 11.6%, to $26.5 million, year over year, primarily due to lower volumes and overhead absorption, partially offset by foreign currency translation. Adjusted EBITDA margin rose 110 basis points to 25.5% compared to 24.4% in the third quarter of 2019.
|RUBBER CARBON BLACK|
|(In millions, unless stated otherwise)||Q3 2020||Q3 2019||Y/Y Change in %|
|Gross Profit per Metric Ton||236.0||292.5||(19.3)%|
|Adjusted EBITDA/metric ton||160.0||194.3||(17.7)%|
|Adjusted EBITDA Margin (%)||16.0||15.4||60bps|
Rubber Carbon Black volumes declined by 9.1%, year over year. Volumes were down in all regions, primarily driven by the COVID-19 induced global economic downturn which impacted demand from tire customers. The year over year volume decline also partially reflected the impact of our commercial strategy during 2019 contract negotiations which emphasized raising price over volume. Volume rose 65.9% sequentially, reflecting partial end market recovery.
Net sales declined by $69.0 million, or 27.9%, to $178.4 million, year over year, primarily driven by the pass through of lower feedstock costs to customers and, to a lesser extent, the broad-based volume slowdown across all regions and markets, partially offset by base price increases.
Gross profit declined by $15.3 million, or 26.7%, to $42.1 million, year over year, driven by lower volumes and the impact of passing through lower feedstock costs, partially offset by base price increases.
Rubber Adjusted EBITDA declined by $9.6 million, or 25.1%, to $28.5 million, year over year, primarily driven by lower volume, the impact of passing through lower feedstock costs and unfavorable mix, partially offset by price increases. Adjusted EBITDA margin was 16.0% in the third quarter of 2020 compared to 15.4% in the third quarter of 2019.
Balance Sheet and Cash Flows
As of September 30, 2020, the Company had cash and cash equivalents of $97.5 million, an increase of $33.8 million from December 31, 2019, primarily reflecting strategic draws on select credit facilities to bolster liquidity. Net debt increased from $609.1 million as of December 31, 2019 to $671.3 million as of September 30, 2020.
The following table shows our current net debt position as of September 30, 2020 compared to December 31, 2019:
|(In millions)||September 30, 2020||December 31, 2019|
|Capitalized transaction costs (long-term)||(3.9||)||(4.7||)|
|Long-term financial debt, net||$||640.0||$||630.3|
|Term loans (current)||$||8.3||$||8.1|
|Capitalized transaction costs (current)||(1.4||)||(1.4||)|
|Short term local bank loans||116.7||29.8|
|Short-term financial debt, net||$||123.5||$||36.4|
|Cash and cash equivalents||$||(97.5||)||$||(63.7||)|
|add-back capitalized transaction costs (long-term and current)||$||5.3||$||6.1|
|Net Debt 1)||$||671.3||$||609.1|
|1) Long-term financial debt, net plus short-term financial debt, net less cash and cash equivalents and add back of capitalized transaction costs. Capitalized transaction costs as well as non-current debt from financial derivatives and other non-current liabilities are disregarded in computing net indebtedness under our lending agreements.|
Cash inflows from operating activities amounted to $1.7 million, down $66.8 million year over year, primarily driven by a combination of lower net income and higher working capital.
Cash outflows from investing activities were $30.9 million, down $3.5 million, year over year, primarily driven by the timing of EPA-related capital expenditures.
Cash outflows from financing activities of $20.9 million declined $8.6 million, year over year, largely reflecting lower repayments of borrowings under select credit lines and the suspension of our dividend earlier in the year.
“While we can’t predict the course or duration of the global pandemic and a meaningful decline in economic activity would curtail our guidance, we project fourth quarter Adjusted EBITDA in the range of $44 million to $54 million, reflecting a continuation of recent trends, despite typical end of year seasonality dynamics. Overall, the third quarter demand surge and current fourth quarter order book patterns are encouraging and confirm that, if the global economy recovers, our businesses should participate and reflect substantial operating leverage. In this uncertain environment, our focus will remain on safety, protecting our employees, staying agile to serve our customers and continuing to position the company to deliver long term value to our shareholders,” Mr. Painter concluded.
Source: Orion Engineered Carbons
YOUR SUPPORT IS CRITICAL TO KEEP PCE ALIVE
WITHOUT YOU, THERE CAN BE NO PCE.
Note to readers:
- Please follow us on LinkedIn ,Twitter and YouTube and subscribe to our website and receive notifications of new posts by email.
- Please click the share buttons below and make a comment.