Market Overview

Element Solutions Inc Announces 2019 Third Quarter Financial Results

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  •  Net sales of $465 million, a decline of 5% from last year on a reported basis or 2% on an organic basis
  • GAAP diluted loss per share of $0.02, compared to loss per share of $0.02 in the same period last year; adjusted EPS of $0.26, compared to $0.05 in the same period last year
  • Reported net loss of $6 million, compared to a loss of $4 million in the same period last year
  • Adjusted EBITDA of $115 million, an increase of 9% from last year on a constant currency basis
  • Third quarter cash flows from operating activities of $87 million; third quarter free cash flows of $80 million
  • Increasing full year 2019 adjusted EPS guidance to $0.84 to $0.87; reaffirming adjusted EBITDA guidance of 2% to 5% growth on a constant currency basis
  • Repurchased approximately 5.6 million shares of common stock in the third quarter

Element Solutions Inc (NYSE:ESI) ("Element Solutions" or the "Company"), a global and diversified specialty chemicals company, today announced its financial results from continuing operations for the third quarter ended September 30, 2019.

Unless otherwise specified, the results presented in this press release exclude discontinued operations relating to the Company's former Agricultural Solutions business sold on January 31, 2019.

Executive Commentary

Chief Executive Officer Benjamin Gliklich said, "Element Solutions experienced the sequential increase in activity we expected coming into the quarter, despite our primary markets continuing to suffer from macroeconomic headwinds. Our Electronics business, in particular, picked up as new platform launches drove strong quarter-over-quarter growth in printed circuit board and assembly activity. Our bottom-line was supported by cost containment in our businesses and continued execution against corporate cost savings. Adjusted EBITDA margins expanded for the third consecutive quarter and overall adjusted EBITDA increased – a solid result, particularly in light of weak market conditions and unfavorable foreign exchange rates. This performance exemplifies the strength of our operating model underpinned by strong execution from our team. We generated $80 million of free cash flows this quarter, of which we deployed $51 million to repurchase 5.6 million shares while holding our net debt to adjusted EBITDA ratio flat at 3.3x."

Mr. Gliklich continued, "Market conditions deteriorated over the third quarter with the global economy, especially the automotive market, continuing to slow and the U.S. dollar strengthening. As of the third quarter, the year-to-date impact from currency on adjusted EBITDA was approximately $15 million and we expect an additional headwind of $5 million to adjusted EBITDA in the fourth quarter of 2019. Nevertheless, we are increasing our adjusted EPS guidance to $0.84 to $0.87 and holding our adjusted EBITDA guidance of 2% to 5% growth on a constant currency basis, although we expect to come in towards the bottom half of this range. This is based on our expectation that full year organic net sales will decline approximately 4% year-over-year. We have generated $166 million of free cash flow year-to-date on an adjusted basis and remain on track to generate approximately $200 million of free cash flow on an adjusted basis this year. As demonstrated once again this quarter, our strong, consistent cash flow provides us flexibility to compound earnings in good markets and more challenging ones."

Third Quarter 2019 Highlights (compared with third quarter 2018) for continuing operations:

  • Net sales on a reported basis for the third quarter of 2019 were $465 million, a decrease of 5% over the third quarter of 2018. Organic net sales, which exclude the impact of currency changes and certain pass-through metal prices, decreased 2%.
    • Electronics: Net sales decreased 4% to $280 million. Organic net sales decreased 1%.
    • Industrial & Specialty: Net sales decreased 6% to $185 million. Organic net sales decreased 4%.
  • Third quarter of 2019 earnings per share (EPS) performance:
    • GAAP diluted loss per share was $0.02 for both 2019 and 2018 third quarters.
    • Adjusted EPS was $0.26, as compared to $0.05 per share.
  • Reported net loss for the third quarter of 2019 was $6 million, as compared to a net loss of $4 million for the third quarter of 2018.
  • Adjusted EBITDA for the third quarter of 2019 was $115 million, an increase of 6%. On a constant currency basis, adjusted EBITDA increased 9%.
    • Electronics: Adjusted EBITDA was $74 million, an increase of 14%. On a constant currency basis, adjusted EBITDA increased 16%.
    • Industrial & Specialty: Adjusted EBITDA was $42 million, a decrease of 4%. On a constant currency basis, adjusted EBITDA decreased 2%.
    • Adjusted EBITDA margin for the combined company increased 260 basis points to 25% on a reported and constant currency basis.

Updated 2019 Guidance

The Company is increasing its full year 2019 adjusted EPS guidance range to $0.84 to $0.87 and is reaffirming its adjusted EBITDA guidance of 2% to 5% growth on a constant currency basis. The Company expects net sales to decline approximately 4% year-over-year on an organic basis.

Recent Developments

As part of its previously-announced share repurchase program, during the three months ended September 30, 2019, the Company repurchased approximately 5.6 million shares of its common stock for approximately $51.0 million, at an average price of $9.06 per share. These repurchases added to the 38.2 million shares repurchased as of June 30, 2019. The remaining authorization under the share repurchase program was approximately $254 million at September 30, 2019.

Conference Call

Element Solutions will host a webcast/dial-in conference call to discuss its 2019 third quarter financial results at 8:30 a.m. (Eastern Time) on Thursday, November 7, 2019. Participants on the call will include Martin E. Franklin, Executive Chairman; Benjamin Gliklich, Chief Executive Officer; Scot R. Benson, President & Chief Operating Officer; and Carey J. Dorman, Chief Financial Officer.

To listen to the call by telephone, please dial 866-342-8591 (domestic) or 203-518-9713 (international) and provide the Conference ID: ESIQ319. The call will be simultaneously webcast at www.elementsolutionsinc.com. A replay of the call will be available after completion of the live call at www.elementsolutionsinc.com.

About Element Solutions

Element Solutions Inc is a leading global specialty chemicals company whose businesses formulate a broad range of solutions that enhance the performance of products people use every day. Developed in multi-step technological processes, the innovative solutions of the Company's businesses enable customers' manufacturing processes in several key industries, including electronic circuitry, semiconductor, communications infrastructure, automotive systems, industrial surface finishing, consumer packaging and offshore energy.

More information about the Company is available at www.elementsolutionsinc.com.

Forward-Looking Statements

This release is intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 as it contains "forward-looking statements" within the meaning of the federal securities laws. These statements will often contain words such as "expect," "anticipate," "project," "will," "should," "believe," "intend," "plan," "assume," "estimate," "predict," "seek," "continue," "outlook," "may," "might," "can have," "likely," "potential" "target," "hope," "goal," "priority" or "guidance" and variations of such words and similar expressions. Examples of forward-looking statements include, but are not limited to, statements, beliefs, projections and expectations regarding macroeconomic headwinds; the Company's cost containment and corporate cost savings; net debt to adjusted EBITDA ratio; outlook for the global economy, especially the automotive market, and the U.S. dollar; expected additional headwind of approximately $5 million to adjusted EBITDA in the fourth quarter of 2019; 2019 financial guidance, including full year adjusted EPS guidance, full year adjusted EBITDA guidance on a constant currency basis and full year organic net sales expectations; generation of approximately $200 million of free cash flow on an adjusted basis for the full year 2019; and flexibility to compound earnings. These projections and statements are based on management's estimates, assumptions or expectations with respect to future events and financial performance, and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those expressed or implied in the forward-looking statements if one or more of the underlying estimates, assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the Company's ability to realize the expected benefits, efficiencies and cost savings from the sale of its Agricultural Solutions business and its cost containment and cost savings measures; the success of its leadership transition and go-forward structure and strategy; the impact of acquisitions, divestitures, restructurings, refinancings, and other unusual items, including the Company's ability to raise and/or retire new debt and/or equity and to integrate and obtain the anticipated benefits, results and synergies from these items or other related strategic initiatives. Additional information concerning these and other factors that could cause actual results to vary is, or will be, included in the periodic and other reports filed by Element Solutions with the Securities and Exchange Commission. Element Solutions undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

ELEMENT SOLUTIONS INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(dollars in millions, except per share amounts)

2019

 

2018

 

2019

 

2018

Net Sales

$

464.7

 

$

488.5

 

$

1,381.2

 

$

1,482.6

Cost of Sales

259.0

 

278.9

 

784.2

 

847.2

Gross profit

205.7

 

209.6

 

597.0

 

635.4

Operating expenses:

 

 

 

 

 

 

 

Selling, technical, general and administrative

128.8

 

139.5

 

397.6

 

424.6

Research and development

10.0

 

10.5

 

31.9

 

33.1

Total operating expenses

138.8

 

150.0

 

429.5

 

457.7

Operating profit

66.9

 

59.6

 

167.5

 

177.7

Other expense:

 

 

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