Trinseo (NYSE: TSE), a specialty material solutions provider, today reported its second quarter 2023 financial results. Net sales in the second quarter decreased 32% versus prior year. Lower sales volume across all reporting segments caused by continued customer destocking and underlying demand weakness led to a 16% decrease. Lower price, from the pass-through of lower raw material costs, led to a 17% decrease.
Results included a non-cash impairment charge of $349 million related to the Engineered Materials reporting unit goodwill balances established in 2021. The persistence of challenging operating conditions, customer destocking and underlying demand weakness contributed to a revised outlook including a further reduction in near-term forecasted operating results and growth projections, as well as an additional decrease in market capitalization. These impairment charges do not affect the Company’s cash position, and the Company remains encouraged about the businesses’ expected growth opportunities, cost savings initiatives and strategic value as it continues to evolve as a specialty material and sustainable solutions provider.
Second quarter net loss from continuing operations of $349 million was $386 million below prior year. Adjusted EBITDA of $57 million was $107 million below prior year. In addition to the goodwill impairment, the reduced year-over-year profitability was driven by lower volume across all segments as well as lower margin, including an unfavorable $48 million net timing variance, as well as lower equity affiliate income from Americas Styrenics. Second quarter results included unfavorable impacts of $16 million from net timing, $12 million from natural gas hedging as well as $4 million from manufacturing cost under absorption.
Commenting on the Company’s second quarter performance, Frank Bozich, President and Chief Executive Officer of Trinseo, said, “As expected, second quarter sales volume was sequentially similar as general market conditions remained unchanged. Despite this, we delivered our third consecutive quarter of increasing profitability due to the asset footprint actions and other initiatives we’ve put in place. In addition, we had another quarter of positive cash generation from our ongoing cash initiatives. I continue to be impressed with our employees’ dedication and resilience to deliver amid this challenging demand environment.”
Second Quarter Results and Commentary by Business Segment
Restructuring Initiatives
2023 Outlook
Full-year 2023 net loss from continuing operations of $460 million and Adjusted EBITDA of $215 million (prior outlook of net loss from continuing operations of $94 million to $61 million and Adjusted EBITDA of $275 million to $325 million†). Adjusted EBITDA is $60 million below the low end of the prior outlook primarily from weaker market conditions in the second half of the year leading to lower expected margins in Feedstocks, Engineered Materials and Polystyrene, with the remainder due to second quarter impacts of $23 million mostly from unfavorable net timing.
Full-year 2023 cash from operations of approximately $190 million resulting in Free Cash Flow of approximately $100 million (prior outlook of cash from operations of approximately $165 million and Free Cash Flow of approximately $75 million†); higher Free Cash Flow outlook despite lower profitability due to working capital reductions.
Commenting on the outlook for 2023, Bozich said, “Our forecast assumes a similar, constrained demand environment though the remainder of the year and we anticipate second half performance to be similar to the second quarter runrate. Despite the economic environment, we continue to improve our cash and liquidity profile, including working capital reductions and capital expenditure deferments. In addition, refinancing our near-term debt maturities is one of our highest priorities, and we are confident we’ll be able to accomplish that in the third quarter.”
Bozich continued, “We are also taking incremental actions to improve our cost position. We believe these initiatives, and the expected natural gas hedge loss reduction, will result in a sequential profitability increase of more than $100 million in 2024 and better position us to achieve higher growth, higher margin and lower volatility as demand normalizes.”
Source: businesswire.com
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