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Trinseo (TSE) Earnings and Revenues Beat Estimates in Q3

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Trinseo S.A. (TSE - Free Report) logged a profit of $75 million or $1.72 per share in third-quarter 2018, a more than a two-fold improvement from a profit of $33 million or 74 cents a year ago.

Barring one-time items, earnings were $1.83 a share, beating the Zacks Consensus Estimate of $1.80.

Revenues rose 9.4% year over year to $1,200 million in the quarter, above the Zacks Consensus Estimate of $1,157 million. The top line improved due to the pass through of higher styrene and butadiene costs. 

Trinseo S.A. Price, Consensus and EPS Surprise

Segment Review

Revenues at the Latex Binders segment increased 4% year over year to $278 million in the reported quarter driven by the pass through of higher raw material costs, partly offset by lower sales volume in Europe and Asia.
 
Revenues at the Synthetic Rubber segment rose around 16% year over year to $138 million due to the pass through of higher raw material costs.

The Performance Plastics segment recorded sales of $401 million, up 11% year over year on a better sales mix from the ABS expansion in China and the pass through of higher raw material costs.

Sales at the Polystyrene segment were up 6% year over year to $252 million on pass through of higher raw material costs, partly offset by lower sales volume in Asia and customer destocking in Europe.

Feedstocks segment sales improved 18% year over year to $131 million on higher styrene-related sales and prices.

Financial Position

Trinseo ended the quarter with cash and cash equivalents of $421.4 million, up around 32.2% year over year. Long-term debt totaled $1,161.7 million, slightly down year over year.
 
The company reported cash flow from operating activities of $56 million for the reported quarter, down around 65% year over year. Free cash flow declined 80% year over year to $25 million.

Share Repurchase

Trinseo returned $52 million to shareholders through repurchases and dividends during the third quarter. The company’s board has also authorized a 2-million share repurchase program during the quarter.

Outlook

For fourth-quarter 2018, Trinseo expects net income in the range of $55-$63 million and adjusted EPS in the band of $1.27-$1.46. Adjusted EBITDA is expected in the range of $110-$120 million.

For 2018, the company envisions net income in the range of $348-356 million and adjusted EPS in the band of $8.27-$8.46. Adjusted EBITDA is projected in the range of $618-$628 million.

For 2019, Trinseo anticipates net income in the range of $344-$368 million while adjusted EBITDA is expected in the band of $600-$630 million.

Trinseo expects sequentially lower profitability in the fourth quarter due to lower styrene margins. For 2019, the company anticipates solid earnings and strong cash flow generation.
 
Price Performance

Trinseo has outperformed the industry over the past six months. The company’s shares have lost 25.8% over this period compared with the industry’s fall of 30.2%.



Zacks Rank & Stocks to Consider

Trinseo carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the basic materials space are CF Industries Holdings, Inc. (CF - Free Report) , The Mosaic Company (MOS - Free Report) and KMG Chemicals, Inc. .

CF Industries has an expected long-term earnings growth rate of 6% and a Zacks Rank #1 (Strong Buy). The company’s shares have gained 39.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mosaic has an expected long-term earnings growth rate of 7% and a Zacks Rank #1. The stock has rallied 57.3% in the past year.

KMG Chemicals has an expected long-term earnings growth rate of 28.5% and a Zacks Rank #2 (Buy). Its shares have risen 40.2% in a year’s time.

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