3 Reasons Why I'm Bullish on This Chemical Maker

While covering Kronos Worldwide's (NYSE: KRO  ) fourth quarter, I had told you why you shouldn't worry about the dip in its sales volumes. A great first quarter from the company has indeed put to rest concerns shrouding the titanium dioxide market.

Being its core business, a visible uptick in the demand for the pigment is great news for Kronos -- one that makes it look like a worthy bet now.

Sit up, Kronos investors!
Titanium dioxide was doing a great job driving up revenue for producers last year when things suddenly turned around in the fourth quarter. Kronos saw a dip in its fourth-quarter sales volumes. So did the world's largest TiO2 producer, DuPont (NYSE: DD  ) . Huntsman (NYSE: HUN  ) also bore the brunt of soft demand in its fourth quarter. This is an industrywide trend.

Thankfully, things are looking up again. DuPont feels the destocking phase has already ended—something we can see through Kronos' first quarter. Its sales volumes hit record first-quarter highs as demand rebounded. Sales volumes for both Huntsman and DuPont also rose sequentially during their respective first quarters.

A pickup in volumes is the best thing to happen, especially when prices are staying firm. Kronos sold its product at prices 34% higher than they were in the year-ago quarter. With producers looking at implementing further prices hikes this year (keep reading to know why), and with volumes rising, all three companies are projecting higher sales in the forthcoming quarter. Kronos actually expects sales volumes this year to top 2011 levels.

Kronos knows how to do it
Falling volumes were not the only issue plaguing TiO2 producers. Input costs have been a persistent pain, and they continue to head north. Kronos expects its 2012 per-metric-ton production cost for TiO2 to jump by a whopping 50%-60% from last year's levels. That's huge, but I am not too worried, because Kronos has already decided how it will tackle rising costs.

Every TiO2 producer resorted to regular price increases last year to offset costs. The strategy has paid off, and it has supported top-line growth. This year should be no different, as Kronos and others have openly stated their intention of passing on the buck to customers. This should take care of higher costs to a great extent.

The Foolish bottom line
Did I mention the third reason yet? It is the insider buying going on in the stock in recent months. An insider pumping money into a stock usually is a good sign because there are plenty of reasons insiders sell shares, but typically only one for buying shares, price appreciation.

I think Kronos is worth a spot on your personalized stock watchlist. Click here to add it.

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Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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