Valhi(US:VHI)2025-05-08 20:15Part I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, show a decrease in total assets to $2.76 billion from $2.80 billion at year-end 2024, primarily due to a significant reduction in cash. Net income attributable to Valhi stockholders increased substantially to $16.9 million from $7.8 million in the prior-year quarter, driven by improved performance in the Chemicals segment. Cash flow from operations showed a greater use of cash compared to the prior year, mainly due to a large environmental settlement payment Condensed Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $2.76 billion from $2.80 billion at December 31, 2024. The decrease was primarily driven by a reduction in cash and cash equivalents from $348.3 million to $194.5 million. Total liabilities decreased to $1.34 billion from $1.42 billion, while total equity increased to $1.41 billion from $1.38 billion Condensed Consolidated Balance Sheet Highlights (In millions) | Account | Dec 31, 2024 | Mar 31, 2025 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $348.3 | $194.5 | | Inventories, net | $685.8 | $729.7 | | Total current assets | $1,453.7 | $1,410.0 | | Total assets | $2,800.2 | $2,757.2 | | Liabilities & Equity | | | | Total current liabilities | $643.8 | $528.6 | | Long-term debt | $484.4 | $525.9 | | Total liabilities | $1,421.1 | $1,343.9 | | Total Valhi stockholders' equity | $1,036.1 | $1,062.5 | | Total liabilities and equity | $2,800.2 | $2,757.2 | Condensed Consolidated Statements of Income For the first quarter of 2025, Valhi reported a significant increase in profitability. Net income attributable to Valhi stockholders more than doubled to $16.9 million, or $0.59 per share, compared to $7.8 million, or $0.27 per share, in the same period of 2024. This improvement was driven by higher net sales of $538.6 million and a lower cost of sales at $416.1 million, resulting in a substantial increase in income before taxes Q1 2025 vs Q1 2024 Income Statement (In millions, except per share data) | Metric | Q1 2024 | Q1 2025 | | :--- | :--- | :--- | | Net sales | $530.6 | $538.6 | | Cost of sales | $444.3 | $416.1 | | Income before income taxes | $18.0 | $30.8 | | Net income | $13.6 | $22.8 | | Net income attributable to Valhi stockholders | $7.8 | $16.9 | | Basic and diluted net income per share | $0.27 | $0.59 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased significantly to $155.9 million in Q1 2025 from $48.8 million in Q1 2024, largely due to a $56.4 million payment for environmental remediation costs. Investing activities used $12.3 million, a reversal from providing $19.5 million in the prior year. Financing activities provided $19.9 million, mainly from net borrowings on Kronos' revolving credit facility. Overall, the cash balance at the end of the period decreased to $231.5 million Q1 2025 vs Q1 2024 Cash Flows (In millions) | Cash Flow Activity | Q1 2024 | Q1 2025 | | :--- | :--- | :--- | | Net cash used in operating activities | $(48.8) | $(155.9) | | Net cash provided by (used in) investing activities | $19.5 | $(12.3) | | Net cash provided by (used in) financing activities | $(32.0) | $19.9 | | Net change in cash | $(61.3) | $(148.3) | - A significant driver for the increased use of cash in operations was a $56.4 million payment for accrued environmental remediation and related costs in Q1 202523 Notes to Condensed Consolidated Financial Statements The notes detail the company's structure, segment performance, debt, revenue sources, and significant legal and environmental contingencies. Key highlights include strong performance in the Chemicals segment, a major environmental settlement payment by subsidiary NL Industries, and details on the 2024 acquisition of the remaining interest in Louisiana Pigment Company, L.P. (LPC) Q1 2025 vs Q1 2024 Segment Operating Income (In millions) | Segment | Q1 2024 Operating Income | Q1 2025 Operating Income | | :--- | :--- | :--- | | Chemicals | $22.8 | $41.2 | | Component products | $3.7 | $5.9 | | Real estate management and development | $5.0 | $3.0 | | Total operating income | $31.5 | $50.1 | - In Q1 2025, subsidiary NL Industries paid $56.1 million plus interest to settle claims related to the Raritan Bay Slag Superfund Site. This payment was a major use of cash during the quarter72 - In July 2024, Kronos acquired the remaining 50% interest in Louisiana Pigment Company, L.P. (LPC) for consideration of $185 million less adjustments. The deal includes a potential earn-out payment of up to $15 million based on future EBITDA performance84 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant increase in Q1 2025 net income to higher operating income from the Chemicals Segment, which benefited from increased sales volumes and lower production costs. The Component Products segment also saw improved results, while the Real Estate segment's income declined. The company expects consolidated operating income for the full year 2025 to be higher than in 2024. Liquidity was impacted by a large environmental settlement payment, but the company believes it has sufficient resources to meet its obligations, including the repayment of Kronos' €75 million notes due in September 2025 Operations Overview Net income attributable to Valhi stockholders rose to $16.9 million ($.59/share) in Q1 2025 from $7.8 million ($.27/share) in Q1 2024. The increase is primarily due to the Chemicals Segment's operating income growing to $41.2 million from $22.8 million. For the full year 2025, the company forecasts higher consolidated operating income compared to 2024, driven by expected improvements across all three segments - The primary driver for the increase in Q1 2025 net income was the Chemicals Segment, where operating income rose by $18.4 million year-over-year101 - The company projects higher operating income for the full year 2025 compared to 2024, anticipating positive contributions from increased sales volumes and lower costs in Chemicals, higher infrastructure reimbursements in Real Estate, and improved sales in Component Products104 Chemicals Segment The Chemicals segment's operating income surged 81% to $41.2 million in Q1 2025, driven by a 5% increase in TiO2 sales volumes and a 2% rise in average selling prices. Gross margin improved significantly from 15% to 22% of net sales, benefiting from lower raw material and utility costs and higher production rates (93% capacity utilization vs. 87% in Q1 2024). The outlook is cautious due to tariff uncertainty, but the company expects improved operating results for 2025, supported by cost reduction initiatives and the integration of the LPC acquisition Chemicals Segment Operating Statistics - Q1 2025 vs Q1 2024 | Metric | Q1 2024 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $478.8M | $489.8M | 2% | | Operating income | $22.8M | $41.2M | 81% | | Gross margin % | 15% | 22% | 50% | | Sales volumes (k metric tons) | 130 | 136 | 5% | | Production volumes (k metric tons) | 121 | 143 | 18% | - The segment's cost of sales as a percentage of net sales improved from 85% to 78%, primarily due to lower production costs and increased absorption of fixed costs from higher production volumes116 - The outlook is tempered by uncertainty around potential U.S. tariffs, which has made customers hesitant to build inventory. However, demand in Europe has improved, partly due to duties on Chinese TiO2 imports126 Component Products Segment The Component Products segment's operating income increased 58% to $5.9 million in Q1 2025 from $3.7 million in the prior-year period. This was driven by a 24% increase in marine components sales, particularly to the towboat and government markets. Security products sales were nearly flat. Gross margin improved from 25% to 30% due to a favorable sales mix and better fixed cost absorption. The company expects modest sales improvement for the full year 2025 Component Products Net Sales by Line (In millions) | Product Line | Q1 2024 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Security products | $29.9 | $30.2 | 1% | | Marine components | $8.1 | $10.1 | 24% | | Total net sales | $38.0 | $40.3 | 6% | - The increase in operating income was primarily due to higher marine components sales and improved gross margin, which rose from 25% to 30% of net sales134136 - The company anticipates potential cost increases from tariffs on certain raw materials and electronic components but believes it can raise selling prices to recoup these costs140142 Real Estate Management and Development Segment The Real Estate segment's operating income decreased to $3.0 million in Q1 2025 from $5.0 million in Q1 2024. Net sales, all related to land sold in prior years and recognized over time, fell to $8.5 million from $13.7 million due to a slower pace of development activity. As of March 31, 2025, the segment has approximately 35 saleable acres remaining, all of which are currently in escrow and expected to close by the end of 2025. The company has $27.6 million in deferred revenue to be recognized over the next one to two years as post-closing obligations are completed - Land sales revenue decreased in Q1 2025 due to a slower pace of development for previously sold parcels, caused by delays in city permits and environmental approvals147 - At March 31, 2025, approximately 20 acres in the residential community and 15 acres zoned for industrial/commercial use are in escrow, with sales expected to close by the end of 2025148 - The segment has $27.6 million in deferred revenue related to post-closing obligations on land sold prior to 2024, which is expected to be recognized over the next 1-2 years148 Liquidity and Capital Resources The company's liquidity was significantly impacted by a $107.1 million year-over-year increase in cash used for operations, primarily due to a large environmental settlement payment. Despite this, management believes it has sufficient liquidity to meet short-term and long-term obligations, including the repayment of Kronos' €75 million notes in September 2025. Total debt stood at $607.8 million. Planned capital expenditures for 2025 are approximately $58 million - Cash used in operating activities was $155.9 million in Q1 2025, a significant increase from $48.8 million in Q1 2024, mainly due to a $57.4 million payment for an environmental remediation settlement163 - The company expects to have sufficient liquidity to meet its obligations, including the repayment of Kronos' €75 million Senior Secured Notes due in September 2025, using cash from operations and borrowings on its Global Revolver if needed181 - Aggregate capital expenditures for 2025 are projected to be approximately $58 million, with $55 million for the Chemicals Segment and $3 million for the Component Products Segment185191 - In July 2024, Kronos reduced its quarterly dividend from $.19 to $.05 per share. In February 2025, NL increased its quarterly dividend from $.08 to $.09 per share192193 Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its exposure to market risks, including currency exchange rates, interest rates, equity security prices, and raw material prices, since the filing of its 2024 Annual Report on Form 10-K - There have been no material changes in market risks since the 2024 Annual Report203 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2025, and concluded they were effective. There were no changes to the internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025204 - No material changes to internal control over financial reporting occurred during the first quarter of 2025208 Part II. OTHER INFORMATION Legal Proceedings The company refers to Note 16 of the Condensed Consolidated Financial Statements and its 2024 Annual Report for descriptions of its legal proceedings. These primarily involve lead pigment litigation and environmental matters related to its subsidiary, NL Industries - For information on legal proceedings, the report directs readers to Note 16 of the financial statements and the 2024 Annual Report210 Risk Factors The company states there have been no material changes to the risk factors previously disclosed in its 2024 Annual Report on Form 10-K - The company refers to its 2024 Annual Report for a full discussion of risk factors, indicating no material changes211 Exhibits This section lists the exhibits filed with the Form 10-Q, which include officer certifications (31.1, 31.2, 32.1) and Inline XBRL data files as required by the SEC - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act214