Tronox(US:TROX)2021-10-28 17:01Financial Data and Key Metrics Changes - Revenue in Q3 2021 increased by 29% year-over-year, totaling approximately $3.5 billion, driven by higher average selling prices and volumes [10][11] - Net income for the quarter was $113 million, with diluted earnings per share at $0.70 and adjusted earnings per share at $0.72 [11] - Adjusted EBITDA reached a record $252 million, reflecting a year-over-year improvement of $104 million, with an adjusted EBITDA margin of 29%, a 700 basis point improvement year-over-year [11][12] - Free cash flow was a record $191 million for the quarter, contributing to a year-to-date total of $418 million [33] Business Line Data and Key Metrics Changes - TiO2 revenue was $682 million, a 26% increase year-over-year, driven by a 13% increase in volumes and a 12% increase in average selling prices [15] - Zircon volumes increased by 81% year-over-year, with average selling prices up 13%, leading to a revenue increase of 107% [16] - Feedstock and other products saw a decline year-over-year due to no external feedstock sales, partially offset by increased pig iron revenue [17] Market Data and Key Metrics Changes - Demand for TiO2 continues to outstrip supply, with inventories remaining below normal levels throughout the supply chain [14][19] - The company anticipates fourth quarter TiO2 volume levels to be flat to down mid-single digits due to ongoing supply chain disruptions [20] - Zircon sales volumes are expected to remain elevated above 2019 and 2020 levels, although lower than Q3 levels [20] Company Strategy and Development Direction - The company aims to become a global TiO2 leader through five strategic pillars: people, vertical integration, technology, global footprint, and competitive costs [38][40] - The newTRON project is expected to unlock cost reductions of $150 to $200 per ton by the end of 2023, with a capital outlay of $150 million across 2021 and 2022 [24][26] - The Atlas-Campaspe project is expected to sustain the company's 85% internalization of feedstock, supporting significant cost savings [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand outlook, stating that demand continues to outpace supply despite logistics challenges [48] - The company is confident in its ability to expand margins and grow EBITDA in 2022, despite facing inflationary pressures [72][101] - Management highlighted the importance of ongoing cost-saving initiatives and the successful resolution of previous production issues [95][96] Other Important Information - The company reduced total debt to $2.7 billion, achieving a net leverage ratio of 2.6 times, ahead of its 2023 target [13][30] - Total available liquidity as of September 30 was $764 million, including $309 million in cash [31] Q&A Session Summary Question: Can you explain how the TiO2 dynamics are shaping up through the end of the year and into 2022? - Management indicated that pricing is expected to increase globally, with demand continuing to outpace supply, although logistics issues are limiting volume [47][48] Question: Can you provide any comments on client availability in the U.S. following recent producer announcements? - Management confirmed that chlorine supply issues have been resolved, allowing for normal production levels [51] Question: How long will it take to rebuild industry inventories? - Management noted that inventories are below seasonal norms and efforts are being made to build inventory, but significant rebuilding is not expected until mid-next year [55][56] Question: Can you discuss the impact of dual control energy policies in China? - Management estimated that about 500,000 tons of capacity has been constrained, but demand remains strong [49][75] Question: How do share buybacks fit into future capital allocation plans? - Management emphasized that reaching the $2.5 billion gross debt target is the priority, with plans for capital expenditures, dividend increases, and share repurchases [78] Question: What is the outlook for energy costs in Q1? - Management believes energy costs are transitory, with some costs rolling into Q1 but confident in the ability to pass costs on [81][82] Question: How is the company managing feedstock availability? - Management highlighted the advantages of vertical integration, which mitigates challenges in the feedstock market [87] Question: Can you discuss the valuation of Tronox? - Management believes the company is undervalued and is focused on reducing debt and expanding margins, which will enhance valuation [98][100]