Valhi(US:VHI)2019-11-08 21:17Financial Performance - Net income from continuing operations attributable to Valhi stockholders decreased to $13.1 million or $0.04 per diluted share in Q3 2019, down from $142.8 million or $0.42 per diluted share in Q3 2018 [116]. - For the first nine months of 2019, net income from continuing operations attributable to Valhi stockholders was $38.5 million or $0.11 per diluted share, compared to $205.8 million or $0.60 per diluted share in the same period of 2018 [118]. - The company anticipates lower consolidated operating income for 2019 compared to 2018 due to various factors impacting its segments [121]. - Consolidated operating income was $167.6 million in the first nine months of 2019, a decrease of $150.4 million compared to $318.0 million in the same period of 2018 [186]. - Cash flows from operating activities decreased to $113.0 million in the first nine months of 2019 from $191.5 million in the same period of 2018, a decrease of $78.5 million [186]. - Cash provided by operating activities decreased from $191.5 million in 2018 to $113.0 million in 2019, representing a decline of approximately 40.9% [189]. Chemicals Segment Performance - The Chemicals Segment experienced lower operating income in 2019 compared to 2018, primarily due to lower average selling prices and higher raw material costs [122]. - The Chemicals Segment's key performance indicators include TiO2 average selling prices, sales and production volumes, and third-party feedstock costs [124]. - Net sales for the Chemicals Segment increased by 7% to $437.4 million in Q3 2019 compared to Q3 2018, with a total increase of 3% to $1,358.4 million for the first nine months of 2019 [125][130][132]. - Sales volumes of TiO2 increased by 17% in Q3 2019 and 16% in the first nine months of 2019, reaching 144 thousand metric tons and 445 thousand metric tons respectively [125][130][133]. - The average TiO2 selling prices decreased by 5% in Q3 2019 and 7% in the first nine months of 2019, negatively impacting net sales by approximately $21 million and $92 million respectively [130][132]. - Cost of sales increased by 20% in Q3 2019 and 24% in the first nine months of 2019, with costs per metric ton rising due to higher raw materials and production costs [134][136]. - Gross margin as a percentage of net sales decreased to 20% in Q3 2019 from 29% in Q3 2018, and to 22% from 35% for the first nine months of 2019 [135][137]. - Operating income fell by 40% in Q3 2019 and 53% in the first nine months of 2019, with operating income as a percentage of net sales decreasing to 8% and 10% respectively [138][139]. - The Chemicals Segment recognized additional depreciation expense of $1.6 million in the first nine months of 2019 related to acquisitions, impacting reported operating income [140]. - The Chemicals Segment expects production volumes in 2019 to be slightly higher compared to 2018, with anticipated sales volumes also increasing [148]. - The Chemicals Segment anticipates stable selling prices for the remainder of 2019, considering rising raw material costs and seasonal demand fluctuations [150]. - The Chemicals Segment's sales in 2019 are expected to be higher than in 2018, driven by increased sales volumes but offset by lower average selling prices and higher operating costs [151]. Real Estate Management and Development - The Real Estate Management and Development Segment's total net sales decreased from $14.9 million in Q3 2018 to $8.1 million in Q3 2019, primarily due to lower land sales revenues [159]. - Land sales revenues in the first nine months of 2019 increased compared to the same period in 2018, attributed to a higher amount of acreage sold and increased infrastructure development spending [161]. - The Real Estate Management and Development Segment expects to maximize cash proceeds from land sales and continue development work over the next several years [163]. Corporate Expenses and Legal Matters - Corporate expenses were 30% higher in Q3 2019 compared to Q3 2018, primarily due to increased environmental remediation costs [171]. - Litigation settlement expenses were $62.0 million in Q2 2018 and $19.3 million in Q2 2019, associated with lead pigment litigation in California [169]. - The company is subject to various legal proceedings and proposed legislation that could potentially affect its financial position, although no material adverse effects are expected at this time [217]. Debt and Liquidity - As of September 30, 2019, consolidated indebtedness was $34.2 million in the Chemicals Segment, $2.5 million in the Component Products Segment, and $1.2 million in the Real Estate Management and Development Segment [191]. - Valhi had $313.0 million outstanding on its $360 million credit facility, due no earlier than December 31, 2020 [192]. - At September 30, 2019, the company had $557.9 million in cash, cash equivalents, and marketable securities, including $165.5 million held by non-U.S. subsidiaries [198]. - Future liquidity is expected to be sufficient to meet short-term and long-term obligations, with $263.9 million available under existing credit facilities [198][197]. - The company plans to fund capital expenditures primarily through cash generated from operations and existing credit facilities [201]. - The company is considering future acquisitions and may issue additional equity securities or increase indebtedness to finance such activities [196]. Capital Expenditures - Capital expenditures for the first nine months of 2019 totaled $37.9 million, with an expectation of approximately $81 million for the entire year [190][200]. Currency Exchange and Market Risks - The company has substantial operations outside the United States, exposing it to currency exchange rate fluctuations [221]. - The company uses currency forward contracts to manage a nominal portion of currency exchange rate market risk, primarily related to its Chemicals Segment [222].