Orion Engineered Carbons(US:OEC)2023-11-02 20:37Financial Performance - Net sales decreased by $76.9 million, or 14.2%, to $466.2 million in Q3 2023 compared to Q3 2022, primarily due to declining oil prices [95]. - Cost of sales decreased by $72.7 million, or 17.0%, to $356.0 million in Q3 2023, mainly due to the effect of declining oil prices [97]. - Gross profit decreased by $4.2 million, or 3.7%, to $110.2 million year over year, attributed to lower volume in the Rubber Carbon Black segment [98]. - Adjusted EBITDA decreased by $3.2 million, or 4.0%, to $77.3 million in Q3 2023, driven by lower volume in the Rubber Carbon Black segment [105]. - Net income decreased by $5.6 million to $26.2 million in Q3 2023 compared to Q3 2022 [106]. - Comprehensive income decreased by $9.2 million in Q3 2023 compared to Q3 2022 [106]. - Net sales decreased by $143.1 million, or 9.1%, to $1,425.7 million for the nine months ended September 30, 2023, primarily due to declining oil prices and lower volume [108]. - Volume decreased by 41.9 kmt to 706.0 kmt compared to the nine months ended September 30, 2022 [109]. - Gross profit increased by $11.6 million, or 3.3%, to $363.7 million, with gross profit per metric ton increasing by 9.4% to $515.2 year over year [114]. - Adjusted EBITDA increased by $18.6 million, or 7.5%, to $265.7 million for the nine months ended September 30, 2023 [117]. - Comprehensive income decreased by $31.3 million to $80.5 million for the nine months ended September 30, 2023 [118]. Operational Metrics - Volume increased by 1.9 kmt to 245.2 kmt in Q3 2023, driven by higher volume in the Specialty Carbon Black segment [96]. - Gross profit per metric ton decreased by 4.4% to $449.4, primarily due to lower margins in the Specialty Carbon Black pricing [99]. - Specialty Carbon Black net sales decreased by $67.2 million, or 12.7%, to $461.9 million for the nine months ended September 30, 2023 [124]. - Rubber Carbon Black net sales decreased by $75.9 million, or 7.3%, to $963.8 million for the nine months ended September 30, 2023 [131]. - Adjusted EBITDA margin for Rubber Carbon Black rose by 560 basis points to 17.9% year over year [134]. Cash Flow and Liquidity - Net cash provided by operating activities for the nine months ended September 30, 2023, was $273.7 million, a significant increase from a cash outflow of $16.7 million in the same period of 2022 [137][140]. - Net cash used in investing activities during the nine months ended September 30, 2023, amounted to $111.0 million, down from $167.1 million in 2022, reflecting a reduction in expenditures related to safety, maintenance, and growth investments [138][141]. - Net cash used in financing activities for the nine months ended September 30, 2023, was $164.9 million, compared to a cash inflow of $167.4 million in 2022, primarily due to debt reduction and stock repurchase [139][142]. - As of September 30, 2023, total liquidity was $333.7 million, including cash and equivalents of $59.1 million and $234.4 million available under the revolving credit facility [147]. - Net working capital decreased from $461.6 million as of December 31, 2022, to $373.3 million as of September 30, 2023, driven by improved payment terms and lower oil prices [149][150]. Capital Expenditures and Investments - 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 [150]. - The ongoing efforts to install emissions reduction technology in the U.S. incurred $26.5 million in expenditures during the nine months ended September 30, 2023 [138]. - The company anticipates that future operating cash flows and existing credit facilities will be sufficient to finance planned capital expenditures and meet working capital needs [146]. Shareholder Actions - The company has approved a new stock repurchase program allowing the purchase of up to approximately 6.9 million shares through June 2027, supplementing an existing program authorizing $50 million in stock repurchases [169]. - As of September 30, 2023, the company repurchased a total of 432,710 shares at an average price of $21.84 per share during the third quarter [171]. - The maximum number of shares remaining to be purchased under the new stock repurchase program is 6.336 million, indicating ongoing commitment to shareholder value [170]. Market and Geopolitical Risks - The ongoing conflicts, including the Russia-Ukraine war and the Hamas-Israel conflict, are expected to cause volatility in crude oil and natural gas prices, impacting the company's operations and financial condition [164][166]. - The company anticipates that these geopolitical events may lead to decreased production volumes and margins, particularly affecting the automotive industry due to curtailed spending by customers [166]. - In 2023, the Federal Deposit Insurance Corporation (FDIC) took control of certain banks in the U.S., raising concerns about credit availability, which could adversely affect the company's financing and operations [167]. - Recent volatility in the banking market may increase exposure to bad debt and affect sales, while suppliers' financing issues could raise raw material and transportation costs [168]. - The company is facing risks related to indebtedness and currency exposure, which could impact its financial stability and operational results [167]. - The inability of customers to access credit facilities may adversely affect their obligations to the company, further impacting its financial condition [168]. - The company is closely monitoring the geopolitical landscape and its potential impacts on global supply chains, which have already been disrupted by the COVID-19 pandemic [164].