Orion Engineered Carbons(US:OEC)2023-08-09 20:17Financial Performance - Net sales decreased by $82.4 million, or 15.2%, to $458.8 million in Q2 2023 compared to Q2 2022, primarily due to declining oil prices and lower volume in both segments [96]. - Volume in both segments decreased by 24.1 kmt in Q2 2023 to 227.3 kmt compared to Q2 2022, impacted by the global economic slowdown [97]. - Cost of sales decreased by $79.7 million, or 18.9%, to $341.7 million in Q2 2023, primarily due to lower volume and declining oil prices [98]. - Gross profit decreased by $2.7 million, or 2.3%, to $117.1 million year over year, driven by lower volume in both segments [99]. - Gross profit per metric ton increased by 8.1% to $515.2, driven by improved contractual Rubber carbon black pricing [100]. - Adjusted EBITDA increased by $3.9 million, or 4.7%, to $87.3 million in Q2 2023, driven by favorable pricing and product mix in the Rubber Carbon Black segment [106]. - Net income for Q2 2023 was $30.1 million, a slight increase of $0.4 million or 1.3% compared to Q2 2022 [96]. - Comprehensive income for Q2 2023 was $23.0 million, an increase of $3.5 million or 17.9% compared to Q2 2022 [95]. - Net sales decreased by $66.2 million, or 6.5%, to $959.5 million for the six months ended June 30, 2023, primarily due to lower volume and declining oil prices [109]. - Gross profit increased by $15.8 million, or 6.6%, to $253.5 million for the six months ended June 30, 2023, driven by favorable product mix and improved contractual Rubber carbon black price [114]. - Adjusted EBITDA increased by $21.8 million, or 13.1%, to $188.4 million for the six months ended June 30, 2023, primarily due to favorable product mix [117]. - Net income increased by $10.2 million, or 16.4%, to $72.4 million for the six months ended June 30, 2023 [108]. - Income from operations increased by $24.9 million, or 23.2%, to $132.4 million for the six months ended June 30, 2023 [108]. Expenses and Costs - Selling, general and administrative expenses decreased by $4.7 million, or 7.9%, to $55.0 million in Q2 2023, primarily due to lower freight costs [101]. - Selling, general and administrative expenses decreased by $4.5 million, or 3.8%, to $112.7 million for the six months ended June 30, 2023, primarily due to lower freight costs [115]. Taxation - The effective tax rate for Q2 2023 was 37.3%, compared to 30.1% in Q2 2022, primarily due to changes in projected earnings mix by geography and tax jurisdiction [102]. - The effective tax rate increased to 33.4% for the six months ended June 30, 2023, compared to 30.0% for the same period in 2022 [116]. Cash Flow and Liquidity - Net cash provided by operating activities for the six months ended June 30, 2023, was $206.2 million, a significant improvement from a net cash used of $50.9 million in the same period of 2022 [138][141]. - Net cash used in investing activities for the six months ended June 30, 2023, was $69.1 million, down from $108.7 million in 2022, reflecting a combination of safety, maintenance, and growth investments [139][142]. - Net cash used in financing activities during the six months ended June 30, 2023, amounted to $120.7 million, compared to a net cash provided of $138.1 million in 2022 [140][143]. - As of June 30, 2023, total liquidity was $339.6 million, including cash and equivalents of $77.3 million and $205.0 million available under the revolving credit facility [148]. - Net working capital decreased from $461.6 million as of December 31, 2022, to $367.9 million as of June 30, 2023, driven by improved payment terms and lower oil prices [150][151]. Debt and Financing - The company had net debt of $782.7 million and a net leverage ratio of 2.34x as of June 30, 2023 [148]. - The company plans to finance capital expenditures with cash generated from operating activities and existing debt capacity, with no material commitments outside the ordinary course of business [151]. - The company anticipates that future operating cash flows and available credit will be sufficient to finance planned capital expenditures and meet working capital needs [147]. - The company has not engaged in any off-balance sheet arrangements as of June 30, 2023 [152]. Market and Economic Conditions - The ongoing efforts to install emissions reduction technology in the U.S. incurred $19.4 million in expenditures during the first half of 2023 [139]. - In 2023, the Federal Deposit Insurance Corporation (FDIC) took control of certain banks in the U.S., raising concerns about credit availability for the company and its stakeholders [165]. - Recent banking market volatility may adversely affect the company's sales and increase exposure to bad debt, impacting financial performance [166]. - The inability of customers to access credit could negatively impact their business operations and obligations to the company, affecting overall financial health [166]. - The company is facing potential increases in raw material, energy, and transportation costs due to suppliers' financing challenges [166]. Shareholder Returns - The company has approved a new stock repurchase program to buy back up to approximately 6.9 million shares through June 2027, supplementing an existing program authorizing $50 million in stock repurchases [168]. - As of April 30, 2023, the company repurchased a total of 661,739 shares at an average price of $25.00, totaling $16.3 million [171]. - In the second quarter of 2023, the company repurchased 822,595 shares at an average price of $24.47 [171]. - The maximum number of shares that can be purchased under the new stock repurchase program is 6.9 million, indicating a significant commitment to returning value to shareholders [169]. - The company has not reported any defaults upon senior securities, indicating a stable financial position in that regard [172]. - The company continues to monitor the impact of economic conditions on its ability to obtain financing for business operations and acquisitions [165].