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Why Is Kronos Worldwide (KRO) Down 10% Since Last Earnings Report?

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A month has gone by since the last earnings report for Kronos Worldwide (KRO - Free Report) . Shares have lost about 10% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kronos Worldwide due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Kronos Worldwide Lags Q2 Earnings & Sales Estimates

Kronos Worldwide recorded net income of $77.7 million or 67 cents per share in second-quarter 2018, down from $196.5 million or $1.70 in the year-ago quarter. The figure also missed the Zacks Consensus Estimate of 77 cents. Lower net income on a year-over-year basis reflects the recognition of a non-cash deferred income tax benefit in 2017.

Net sales went up around 7% year over year to $471.8 million on the back of higher average TiO2 selling prices, partly offset by lower sales volumes. However, the figure missed the Zacks Consensus Estimate of $536 million.   

Volumes and Pricing

TiO2 sales volumes fell 12% year over year in the quarter due to reduced shipments as well as lower sales in the European and export markets, partly offset by higher sales in the North American market.

The company’s TiO2 production volume also fell 4% and production facilities operated at 97% of practical capacity in the reported quarter.  

Average TiO2 selling prices rose 20% year over year, reflecting higher prices in the North American, European and export markets that were partly offset by lower prices in Latin America (due to changes in customer mix).

Balance Sheet

As of Jun 30, 2018, Kronos Worldwide had cash and cash equivalents of $431.9 million, surging nearly four-fold year over year from $114.1 million.

Long-term debt was $460.9 million, up around 31.4% year over year. Cash flows from operating activities were $169.7 million for the first half compared with $101.6 million for the same period a year ago.

Outlook

Kronos Worldwide expects production volumes to fall slightly in 2018 from the year-ago quarter’s level. It also expects sales volumes for 2018 to be somewhat lower year over year based on expected production levels and considering the current global economic conditions. The company believes that customer inventory level changes are short term and will not continue beyond the third quarter. The company will continue to examine current and expected customer demand levels in the near term and align production and inventories accordingly.

The company also envisions that income from operations in 2018 will be higher on a year-over-year basis, mainly due to expected higher average selling prices that will be partly offset by raw material cost inflation (mainly feedstock ore).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -16.67% due to these changes.

VGM Scores

Currently, Kronos Worldwide has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Kronos Worldwide has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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