Kronos(KRO) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents Kronos Worldwide, Inc.'s unaudited condensed consolidated financial statements for Q2 and H1 2025, detailing financial performance, position, and cash flows, along with significant accounting notes Condensed Consolidated Balance Sheets Total assets increased to $1,940.4 million by June 30, 2025, driven by property and equipment, while total liabilities grew due to long-term debt, resulting in a modest rise in stockholders' equity Condensed Consolidated Balance Sheet Highlights (In millions) | Balance Sheet Item | Dec 31, 2024 | June 30, 2025 | | :--- | :--- | :--- | | Total current assets | $1,105.3 | $1,087.6 | | Cash and cash equivalents | $106.7 | $18.9 | | Net property and equipment | $694.1 | $731.2 | | Total assets | $1,913.5 | $1,940.4 | | Total current liabilities | $476.6 | $390.2 | | Long-term debt | $429.1 | $501.4 | | Total liabilities | $996.5 | $1,093.6 | | Total stockholders' equity | $817.0 | $846.8 | Condensed Consolidated Statements of Operations The company reported a net loss of $9.2 million in Q2 2025 and a significant decline in H1 2025 net income, primarily due to increased cost of sales and compressed gross margins Key Operating Results (In millions, except per share data) | Metric | Q2 2024 | Q2 2025 | H1 2024 | H1 2025 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $500.5 | $494.4 | $979.3 | $984.2 | | Gross margin | $100.2 | $62.8 | $171.7 | $169.7 | | Income from operations | $35.9 | $7.4 | $55.4 | $45.8 | | Net income (loss) | $19.5 | $(9.2) | $27.6 | $8.9 | | Net income (loss) per share | $0.17 | $(0.08) | $0.24 | $0.08 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income decreased to $5.4 million in Q2 2025 but significantly increased to $41.2 million for H1 2025, largely driven by positive currency translation adjustments Comprehensive Income Summary (In millions) | Metric | Q2 2024 | Q2 2025 | H1 2024 | H1 2025 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $19.5 | $(9.2) | $27.6 | $8.9 | | Currency translation | $1.9 | $14.2 | $(18.7) | $31.5 | | Comprehensive income | $21.9 | $5.4 | $9.9 | $41.2 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $846.8 million by June 30, 2025, primarily due to other comprehensive income, despite reduced dividends per share - Dividends paid per share were reduced to $0.10 in the first six months of 2025, compared to $0.38 in the same period of 2024[20] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $81.7 million in H1 2025 due to unfavorable working capital and lower net income, while financing activities provided cash Cash Flow Summary (In millions) | Cash Flow Activity | Six months ended June 30, 2024 | Six months ended June 30, 2025 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5.1) | $(81.7) | | Cash flows from investing activities | $(8.1) | $(23.2) | | Net cash provided by (used in) financing activities | $(48.4) | $13.9 | | Net change in cash | $(61.6) | $(91.0) | Notes to Condensed Consolidated Financial Statements Notes detail the full consolidation of LPC, a decline in TiO2 segment profit, an amended Global Revolver increasing borrowing capacity, and expected deferred tax expense from German tax rate changes - Effective July 16, 2024, the company acquired the remaining 50% interest in Louisiana Pigment Company, L.P. (LPC), making it a wholly-owned subsidiary. LPC's results are consolidated from that date[26][61] - In July 2025, the company amended its Global Revolver, increasing the maximum borrowing amount from $300 million to $350 million[38] - Germany enacted legislation that will reduce the corporate tax rate starting in 2028. The company expects to record a deferred income tax expense of $20 million to $23 million in Q3 2025 as a result[51] TiO2 Segment Profit (In millions) | Period | 2024 | 2025 | | :--- | :--- | :--- | | Three months ended June 30 | $41.1 | $10.9 | | Six months ended June 30 | $64.5 | $52.5 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the decline in Q2 and H1 2025 profitability to lower production volumes and higher costs, while addressing industry uncertainty, LPC integration, and strengthened liquidity Results of Operations Q2 2025 saw a 1% net sales decrease and gross margin compression due to rising costs, while H1 2025 net sales increased 1% but gross margin still compressed due to reduced production rates and lower capacity utilization - Net income decreased in Q2 2025 primarily due to lower production volumes, which resulted in lower absorption of fixed production costs[71] Production Capacity Utilization Rates | Period | 2024 | 2025 | | :--- | :--- | :--- | | First Quarter | 87% | 93% | | Second Quarter | 99% | 81% | - For Q2 2025, changes in currency exchange rates increased net sales by approximately $8 million and segment profit by approximately $14 million compared to Q2 2024[85][91][110] Outlook Management anticipates lower full-year 2025 operating results due to weak demand, pricing pressures, and lower fixed cost absorption, despite moderating raw material costs - The company expects to report lower operating results for the full year of 2025 as compared to 2024 due to weaker demand, pricing pressures, and lower fixed cost absorption[120] - Customer demand slowed in Q2 2025 and is expected to remain challenging due to high interest rates, inflation, and global tariff/trade tensions[119] - Raw material, energy, and other input costs are trending lower, with benefits expected to be reflected in operating results in the second half of 2025[120] Liquidity and Capital Resources Liquidity is primarily from operating cash flows and the revolving credit facility, with cash used in operations significantly increasing in H1 2025, prompting an increase in Global Revolver capacity - Cash used for operating activities increased to $81.7 million in H1 2025 from $5.1 million in H1 2024, primarily due to unfavorable changes in working capital and lower income[126][131] - In July 2025, the company increased its Global Revolver borrowing capacity to $350 million to provide additional liquidity for general corporate purposes and to support near-term debt maturities, including the €75 million notes due September 2025[122][132] - Capital expenditures for 2025 are planned to be approximately $45 million, with $23.2 million spent through June 30, 2025[140] Quantitative and Qualitative Disclosure About Market Risk No material changes in market risks, including currency, interest rates, equity, and raw material prices, have occurred since the 2024 Annual Report filing - There have been no material changes in market risks (currency exchange rates, interest rates, equity security, and raw material prices) since the 2024 Annual Report[145] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[146] - No material changes to internal control over financial reporting were identified during the quarter ended June 30, 2025[149] Part II. Other Information Risk Factors This section refers to the 2024 Annual Report for risk factors, indicating no new or materially changed risks in this quarterly filing - The report refers to the risk factors section of the 2024 Annual Report, implying no material updates to risk factors in this quarter[152] Exhibits This section lists exhibits filed with the Form 10-Q, including the Fourth Amendment to the Credit Agreement and officer certifications - A key exhibit filed is the Fourth Amendment to the Credit Agreement, dated July 17, 2025[154]