BERWYN, PA — Trinseo (NYSE: TSE) has reported its first quarter 2021 financial results. Net sales in the first quarter increased 28% versus prior year.
Higher prices, mainly due to the pass through of higher raw material costs, resulted in a 16% sales increase. Higher sales volume in all segments except for Feedstocks resulted in a 7% increase in net sales. First quarter net income of $72 million was $108 million above prior year and first quarter Adjusted EBITDA of $201 million was $144 million above prior year. The increase in earnings was due mainly to higher margins, primarily in Base Plastics, Polystyrene and especially Feedstocks, where March styrene margins were the highest observed in over twenty years. Higher sales volume, particularly in Engineered Materials and Synthetic Rubber, as well as a favorable pre-tax net timing variance of $17 million, also contributed to higher earnings.
First Quarter 2021 and Other Highlights
- Strong net income of $72 million and diluted EPS of $1.81
- Record quarterly Adjusted EBITDA* of $201 million, including a $7 million favorable impact from net timing, and record quarterly Adjusted EPS* of $3.27
- First quarter cash from operations of $51 million, Free Cash Flow* of $38 million, and quarter-ending cash and cash equivalents of $618 million
- Completed acquisition of Arkema’s PMMA business on May 3, marking a major step in Trinseo’s transformation to becoming an advanced specialty and sustainable solutions provider
- Announced plans to build full commercial scale polystyrene recycling plant in Tessenderlo, Belgium, which is expected to be operational in 2023
Cash provided by operating activities in the first quarter was $51 million and capital expenditures were $13 million, resulting in Free Cash Flow for the quarter of $38 million. This result included a $113 million increase in net working capital due to significant raw material cost increases during the quarter. The cash balance at the end of the quarter was $618 million. For a reconciliation of Free Cash Flow to cash provided by operating activities, see Note 3 below.
Commenting on the Company’s first quarter performance, Frank Bozich, President and Chief Executive Officer of Trinseo, said, “We have started 2021 on a great note with one of the highest quarterly net income results and the highest quarterly Adjusted EBITDA result in Trinseo’s history. Our continued focus on our business excellence program, including our commercial excellence initiatives, the dedication of our team to serve our customers amid numerous industry supply chain challenges, as well as strong market conditions enabled us to deliver these results. We also continue to make structural improvements to our business which are expected to result in higher sustained levels of profitability. I am proud of our dedicated employees who continue to safely and responsibly provide our customers with quality products and solutions despite unique and challenging global events.”
First Quarter Results and Commentary by Business Segment
- Latex Binders net sales of $251 million for the quarter increased 15% versus prior year due primarily to the passthrough of higher raw materials. Sales volume was higher than prior year as sales increases to CASE, textile, board and specialty paper applications were partially offset by sales decreases to graphical paper applications. In comparison to prior year, volume to CASE applications increased 16% in the first quarter. Adjusted EBITDA of $18 million was $4 million lower than prior year. Higher sales volume was more than offset by lower margin, which was a result of unfavorable net timing caused by a large unfavorable price lag from the sharp increase in styrene in March.
- Synthetic Rubber net sales of $124 million for the quarter increased 22% versus prior year caused primarily by higher volumes, particularly in SSBR which observed its highest quarterly volume in nearly three years from growth initiatives and as demand in the tire market continues to recover. Adjusted EBITDA of $14 million was $1 million lower than prior year as higher sales volume was more than offset by a prior year inventory build and an unfavorable net timing impact. The Company continues to evaluate the potential divestiture of the segment.
- Engineered Materials net sales of $66 million for the quarter increased 38% versus prior year due mainly to higher sales volume to consumer electronics applications in Asia and TPE applications in Europe. Adjusted EBITDA of $8 million was flat to prior year as the improvement in sales volume was offset by lower margins mostly as a result of a sharp increase in raw material costs, particularly polycarbonate.
- Base Plastics net sales of $329 million for the quarter were 28% higher than prior year due to a combination of favorable currency impacts, higher volume in applications like construction and higher pricing mainly from the passthrough of higher raw materials. Adjusted EBITDA of $66 million was $38 million favorable versus prior year as commercial excellence initiatives, along with high demand and tight supply, led to higher margins in ABS and polycarbonate.
- Polystyrene net sales of $267 million for the quarter were 46% above prior year mostly from the passthrough of higher styrene. Sales volume increased net sales by 7%, as demand remained high for applications in appliances and consumer electronics. Adjusted EBITDA of $48 million was $36 million higher than prior year due to higher margins, particularly in Asia resulting from commercial excellence initiatives and strong market conditions, as well as a favorable net timing variance of $8 million.
- Feedstocks net sales of $56 million for the quarter were 25% above prior year due to higher styrene pricing which was partially offset by lower styrene-related sales volume. Adjusted EBITDA of $47 million was $63 million higher than prior year due to significantly higher styrene margins in Europe, particularly in March due to strong demand and tight supply, as well as a $21 million favorable net timing variance.
- Americas Styrenics Adjusted EBITDA of $23 million for the quarter was $13 million above prior year due mainly to higher styrene volume and margin in North America, mainly due to strong market demand and industry outages.
2021 Full-Year Outlook
- Full-year 2021 net income of $303 million to $343 million and Adjusted EBITDA* of $625 million to $675 million, excluding any impact from the acquisition of Arkema’s PMMA business and the potential divestiture of the Synthetic Rubber segment.
- Second quarter results are expected to be similar to those from the first quarter due to a continuation of similar market trends, including strong demand and margins across many of our segments.
Commenting on the outlook for the remainder of 2021, Bozich said, “We expect second quarter performance to be similar to the first quarter, especially given the high styrene margins we’ve seen in the beginning of the second quarter, as well as the continued momentum in the remainder of our business. In light of this we have increased our full-year guidance, which reflects a lower but still very strong second half of the year primarily due to more normalized supply conditions.”
Bozich continued, “We are excited to welcome the employees of the PMMA business to the Trinseo family. The close of this transaction at the beginning of this week was an important step in our transformation towards becoming an advanced materials and sustainable solutions provider, and we are highly focused on integrating that business and harmonizing our processes and systems. In addition, we are still on track to conclude our efforts around the exploration of a potential sale of the Synthetic Rubber business by mid-year. Looking forward, we will continue to implement additional steps to grow the company in areas with higher margins and less cyclicality with an ongoing focus on achieving our 2030 sustainability goals.”
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