Trinseo Reports Second Quarter 2023 Financial Results

WAYNE, Pa.–(BUSINESS WIRE)– Trinseo (NYSE: TSE):

*For a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted Net Income (Loss), all of which are non-GAAP measures, to Net Income (Loss), as well as a reconciliation of Free Cash Flow and Adjusted EPS, see Notes 2 and 3 to the financial statements included below.

Trinseo (NYSE: TSE), a specialty material solutions provider, has 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

• Engineered Materials net sales of $206 million for the quarter decreased 32% versus prior year including an 18% impact from lower volume across all products from weak underlying demand and continued customer destocking, particularly in building & construction, consumer electronics and wellness applications, as well as a 13% impact from lower price due to raw material pass-through. Adjusted EBITDA of $12 million was $22 million below prior year mainly from lower sales volume. Results included unfavorable impacts of $6 million from natural gas hedging and $9 million from net timing. Sequentially, Adjusted EBITDA increased $24 million from lower raw material cost as well as higher volume mainly to consumer electronics applications.
• Latex Binders net sales of $254 million for the quarter decreased 28% versus prior year including a 17% impact from lower volumes across all regions and applications and a 12% impact from lower price from the pass-through of lower raw material costs. Adjusted EBITDA of $25 million was $4 million below prior year as lower volumes and fixed cost under absorption were mostly offset by pricing initiatives. Volume for CASE applications declined by 7% in the second quarter compared to prior year, a better result in comparison to other applications, and represented 16% of segment revenue during the quarter, a record-high proportion. Adjusted EBITDA was flat on a sequential basis.
• Plastics Solutions net sales of $272 million for the quarter were 25% below prior year including a 14% decrease in price from the pass-through of lower raw material costs and an 11% decrease from lower volumes. Sales decreased in polycarbonate from the announced shutdown of one production line as well as in copolymers for building & construction, industrial and consumer durables applications. Sales volume to automotive applications was in line with prior year. Adjusted EBITDA of $25 million was $21 million below prior year primarily from ABS, as weaker demand led to lower sales volume and also pressured margins. Results included an $11 million negative net timing variance versus prior year. Adjusted EBITDA was in line with prior quarter.
• Polystyrene net sales of $193 million for the quarter were 38% below prior year. Lower price, primarily from the pass-through of lower styrene costs, led to a 25% decrease and lower volume, from weaker demand in appliance and building & construction applications, led to a 14% decrease. Adjusted EBITDA of $6 million was $17 million below prior year from lower sales volume, lower margin from an $8 million net timing variance, as well as fixed cost under absorption. Sequentially, Adjusted EBITDA decreased $10 million from an unfavorable net timing variance of $3 million as well as lower volume and fixed cost under absorption.
• Feedstocks net sales of $37 million for the quarter were 61% below prior year from a 33% impact from lower volume and a 28% impact from lower price. Adjusted EBITDA of negative $7 million was $21 million below prior year from lower styrene margin, including an unfavorable net timing variance of $23 million and a natural gas hedge loss of $5 million.
• Americas Styrenics Adjusted EBITDA of $13 million for the quarter was $26 million below prior year from lower styrene margins compared to very high levels in the prior year. Adjusted EBITDA decreased $5 million versus prior quarter due to lower styrene and polystyrene margin from weaker economic conditions.

Restructuring Initiatives

• Potential closure of the Terneuzen, the Netherlands styrene plant: The Company has commenced discussions with the Works Council of Trinseo Netherlands B.V. regarding the potential closure of this facility. If closed, Trinseo will no longer produce styrene, and will obtain styrene for its downstream businesses entirely via external purchases.
• Optimization of Europe PMMA sheet network: The Company has commenced discussions with relevant works councils regarding the optimization of its PMMA sheet network in Europe, including the consolidation of operations.
• Cost savings: The Company is currently taking measures to lower operating costs including headcount and other reductions.

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.”

†For the prior outlook, refer to the Company’s press release, furnished on its Form 8-K dated May 4, 2023, for a reconciliation of non-GAAP measures to their corresponding GAAP measures.