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Tronox (NYSE:TROX)
Q2 2019 Earnings Call
Aug 07, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to the second-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, senior vice president of investor relations, Brennen Arndt. Please go ahead.

Brennen Arndt -- Senior Vice President of Investor Relations

Thank you, Chris, and welcome, everyone, to our second-quarter 2019 conference call. On our call today are Jeff Quinn, chairman and chief executive officer; Jean-Francois Turgeon, chief operating officer; John Romano, chief commercial and strategy officer; and Tim Carlson, chief financial officer. We'll be using slides as we move through today's call. Those of you listening by Internet broadcast through our website should already have them.

For those listening by telephone, if you haven't already done so, you can access them on our website at tronox.com. Moving to Slide 2. A reminder that our comments made on this call, as well as the information provided in our presentation and on our website, including certain statements that are forward-looking and subject to various risks and uncertainties, including, but not limited to, the specific factors summarized in our SEC filings, including those under the heading entitled Risk Factors in our annual report on Form 10-K/A for the year ended December 31, 2018. This information represents our best judgment based on today's information.

However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements. During the conference call we will refer to certain non-U.S. GAAP financial terms that we use in the management of our business and that we believe are useful to investors evaluating the company's performance.

These include EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per diluted share and free cash flow. Reconciliations to their nearest U.S. GAAP terms are provided in our earnings release and in the appendix of the slide deck. For the company's guidance with respect to full-year 2019 adjusted EBITDA, adjusted earnings per diluted share and free cash flow we're not able to provide without unreasonable effort the most directly comparable GAAP financial measure or reconciliations of such GAAP financial measure because certain items that impact such measure are uncertain, out of our control or cannot be reasonably predicted.

As you saw in our earnings release, we provided our results on both a reported basis and a pro forma basis to assist in our discussion of the second-quarter performance compared to the second quarter 2018 and the first-quarter 2019. Our primary focus today will be on the pro forma comparisons to enhance your understanding of the underlying trends, our business performance and our markets. In the appendices of our earnings release and this slide deck are pro forma statements of operations and pro forma adjusted EBITDA statements for the second-quarters 2019 and 2018. Moving to Slide 3.

It's now my pleasure to turn the call over to Jeff Quinn. Jeff?

John Romano -- Chief Commercial and Strategy Officer

Thanks, Jeff. Moving to Slide 4. As Brennen said, our discussion today will focus on the pro forma numbers to provide a clear understanding of the commercial performance of the new Tronox and the trends in our business. I'll briefly review the second-quarter revenue performance versus the year-ago quarter then focus my remarks on the sequential comparison to give you a sense of the direction we're taking the business.

Year-on-year revenue of $827 million was 8% lower than $903 million in the second quarter of 2018 or 7% lower, excluding revenue of $15 million in the year-ago quarter on the electrolytic business sold in September of 2008. Revenue was down for two primary reasons, the two we've spoken about on recent calls and presentations: Cristal's commercial approach in 2018 and lower year-on-year zircon sales and production volumes as legacy Cristal minings operations in Australia. In TiO2, sales of $657 million were 7% lower. Sales volumes increased 3%, reflecting the completion of the destocking in Europe and Asia and continued resilience in the North American market.

Selling prices were 6% lower on a local currency basis and 8% lower on a U.S. dollar basis as the translation of the euro was a $16 million headwind on revenue. Regarding the year-on-year TiO2 selling price decline, as I discussed at our investor day in May, since closing the acquisition on April the 10th, we fully implemented our single, unified, commercial approach to serving our combined global customer base. We were pleased to find minimal customer overlap across the regions, and our average pricing across regions was quite similar.

Price harmonization program across the merge customer base went very well and is now completed. So the 6% year-on-year decline in pricing on a local currency basis is essentially a prior-year issue, as we discussed with you at investor day and in the previous call. In zircon, sales of $89 million were 18% lower as 12% higher selling prices were more than offset by 27% lower sales and production volumes at legacy Cristal mining operations in Australia. The mineral concentrator at the Gingko mine in Australia went down in October of last year.

The concentrator is on a floating barge, and one of the pontoons ruptured. The lower production volumes from Gingko resulted in lower sales volumes. We discussed the concentrator in detail at our investor day in May, and at that time, committed to restarting the concentrator in early August. I'd like to congratulate Jean-François and his team lead in Australia by managing director Russ Austin as the concentrator was safely restarted this week right on schedule.

Moving to feedstock and other products. Sales of $81 million, compared to $77 million in the year-ago quarter. Higher CP slag sales volumes drove the increase, which were partially offset by lower ilmenite sales. As you know, we no longer actively sell ilmenite in the market given our expanded internal requirements.

Now moving to Slide 5 for the sequential comparison versus the first quarter of this year, again on a pro forma basis. Revenue of $827 million was 15% higher than the $720 million in the prior quarter. Higher pigment and zircon sales volumes were the primary driver of the increase. In TiO2, pigment sales of $657 million increased 15%.

Sales volumes increased 17%, reflecting the normal seasonal uptick, the completion of destocking in Europe and Asia and continued resilient North American market conditions. Selling prices were level to the first quarter on a local currency basis and 1% lower on a U.S. dollar basis. As I mentioned earlier, we benefited from minimal customer overlap across regions and lower price harmonization risk.

We continually -- we continue to work successfully with our customers on unique win-win, margin-stability initiatives that provide the predictability of price and the stability of supply that our customers are looking for, and at the same time, the margin stability that will allow us to consistently reinvest in our business throughout the cycle. We're having success with these initiatives in both coatings and plastic markets. Moving to zircon, sales of $89 million increased 7%. Sales volumes increased 8%, positively impacted by the timing of shipments, while selling prices were 1% lower due solely to mix.

As we look forward into the second half of the year, we are seeing some softening in the demand for zircon due to the uncertain outlook in China affected by the trade war, environmental regulations and generally slower growth. We've seen an increase in sales of lower-grades zircon products, which has put some pressure on price for premium-grade zircon. As a result, we expect our zircon sales volumes in the second half to be similar to the sales volumes in the first half. This sales level is included in our full-year outlook that Jeff discussed.

Our mid- to long-term outlook on zircon is still positive based on supply/demand fundamentals. Feedstock and other product sales of $81 million increased from $68 million in the prior quarter. Higher CP slag volumes more than offset lower ilmenite sales as our ilmenite production now serves our expanded internal requirements. And with that, I thank you, and I'll now turn the call over to JF for a review of our operating performance and profitability in the quarter.

JF?

Jean-Francois Turgeon -- Chief Operating Officer

Thanks, John, and good morning, everyone. Moving to Slide 6. I'm very pleased to speak with you today and report that our integration work is going very well across our global operation, the world's largest vertically integrated TiO2 production network with nine pigment plants and eight mineral sand facilities on six continents. As John did, I'll briefly cover the year-on-year comparison then move to the sequential comparison.

The sequential comparison will give you a good sense of what we have accomplished since we took the key to Cristal on April 10 and where we're heading on our journey to improve our safety, lower our costs, increase our product quality and generating cash using our advantage global footprint and integrated position. Second-quarter 2019 pro forma adjust EBITDA of $200 million was 22% lower than the $257 million in the year-ago quarter. The primary driver to the lower year-on-year result are those we discussed at our investor day in May. They are lower year-on-year TiO2 selling price due to legacy Cristal commercial approach in 2018 that John covered, lower zircon sales and production volume in Cristal Mining operation in Australia due to the operational downtime that limited sales volume.

The associated higher production costs at Cristal Mining Australia also impacted the comparison. As John said, the Gingko mine concentrator has restarted. I also want to thank my team and our employees in Australia, led by managing director Russ Austin, a job very well done. In fact, the picture on Slide 6 show the dredge as of last weekend.

As you can see, the dredge is floating and was restarted earlier this week. Higher Cristal external feedstock costs that largely rolled off by the end of the year also impacted results in the quarter. A major contributor to adjusted EBITDA in the quarter was the $28 million margin benefit from our shift to fully integrated operation. As Jeff said, we move from a long position in feedstock to a short position upon closing.

The actions we took, our operation in the three to four quarter, in advance of moving from a long to short position at closing, are now bearing fruit. They were the same actions that diminished our margin in those quarters, including the first quarter of this year that we discussed with you on last call. We increased high-grade feedstock production and put the lower unit cost product into inventory. This lower-cost inventory is now benefiting pigment margin as the pigment made from that feedstock is sold.

Favorable foreign exchange, primarily the South African rand and the Aussie dollar, benefit adjusted EBITDA by $30 million, and we're off to a good start to delivering our targeted synergy with $12 million realized in the second quarter, $11 million reflected in adjusted EBITDA and $1 million of interest savings not in the adjusted EBITDA bridge. Let's move to Slide 7 for a brief summary of the synergy delivered in the quarter. Here are the synergy targets we share with you on investor day. The synergy in each year represent the savings we expect to achieve in that calendar year. Our 2019 target, as you can see, is $45 million.

We realized $12 million in the second quarter, compared to our range for the second quarter of $5 million to $10 million. The $12 million savings were generated in a number of areas, SG&A reduction through organizational efficiency initiative and lower indirect spending, such as a reduction in overhead expense and professional service fee; feedstock saving by optimizing our value in [Inaudible]. This is a great example of how having control over our own feedstock is so valuable to us strategically over the long term. We can optimize or use different feedstock grade to minimize waste and maximize value creation.

Supply chain savings also contributed in the quarter with reduction in direct material purchasing and service contract, as well as consolidation of contract and elimination of redundant service. In addition, reduced interest rate contribute $1 million that are not reflected in the adjust EBITDA bridge. Let's move to the sequential adjust EBITDA bridge to give you a sense of the movement we're generating in our operation. Moving to Slide 8.

Adjusted EBITDA of $200 million increased 42% from the $141 million in the first-quarter 2019. Higher TiO2, zircon, feedstock and co-product sales volume, combined, contribute $34 million to the increase. Favorable foreign exchange on cost of $7 million, again primarily to South African rand. $28 million of the increase came from the margin benefit from our shift to fully integrated operation, and synergy saving raised EBITDA by an additional $11 million.

As you can see, we are executing our plan and generating significant momentum. Yes, global macroeconomic conditions are uncertain. However, as Jeff said, many of the key drivers to increase our profitability are in our control, delivering the synergy and optimizing our global operating foot print. We are fully intent to meet our commitment to lower our cost, improve our product quality and generated cash using our advantage and integrated position.

With that, I thank you. I look forward to continuing to report on our progress, and I'll turn the call over to Tim Carlson for a review of our financial position.

Tim Carlson -- Chief Financial Officer

Thank you, Jeff. Moving to Slide 9 and starting with our balance sheet. On June 30, 2019, debt was $3.2 billion, and debt, net of cash and cash equivalents, was $2.8 billion. Our liquidity was $798 million, comprised to cash and cash equivalents of $397 million and $401 million available under revolving credit agreements.

And our net leverage on a trailing 12-month basis was 3.7 times. We continue to expect our net leverage to be under three times in 2020. Regarding the legacy Cristal recording concern we identified following closing in April, it has been resolved. The pro forma adjusted EBITDA that Cristal generated in first quarter was $61 million.

The concern regarding noncurrent liabilities had offsetting adjustments to other balance sheet accounts and other comprehensive income. The concern regarding working capital was within accounting guidelines. Our capital allocation policy is unchanged with the priority given to deleveraging and disciplined capital spending on high-return organic projects. As we've said, share repurchase will be done solely on an opportunistic basis.

Our capital spending in the second quarter was $56 million, well below our depreciation, depletion and amortization expense of $84 million. As you know, we did undertake significant share repurchases since closing the acquisition. We returned approximately $263 million to shareholders in the second quarter by repurchasing approximately 19 million shares and making our regular dividend payment. On May ninth of this year, we repurchased 14 million Tronox shares from Exxaro for an aggregate purchase price of approximately $200 million or $14.32 per share.

The share price was based upon a 5% discount to the 10-day volume-weighted average share price as of the day that Exxaro exercised their sales notice to us. On June 3, our board authorized the repurchase of up to $100 million of Tronox shares. During the second-quarter 2019, we repurchased 5 million shares under the repurchase program at an average price of $11.26 per share and at a cost of approximately $56 million. We continue to purchase in the third quarter.

As of August sixth, we have repurchased 7.5 million shares under the authorization at an average price of $11.59 per share and at a cost of approximately $86 million. As a result, we have returned $294 million to share owners from the start of our second quarter to August 6 by the repurchase of approximately 21.5 million shares and with our regular dividend payments. Regarding our forecast for the second-half 2019, as Jeff stated, we are maintaining our outlook for a full-year 2019 on a reported basis within the previously provided ranges and narrowing guidance to the lower half of previously provided ranges for revenue of $2.83 billion to $2.98 billion and adjusted EBITDA of $635 million to $740 million, respectively, the high end of previously provided range for adjustment diluted EPS of negative $0.17 to $0.43 and within the previously provided range for free cash flow of $130 million to $160 million. With that, I thank you, and I'll turn the call back over to Jeff for closing comments.

Jeff Quinn -- Chairman and Chief Executive Officer

Thanks, Tim. As you can see, we are executing well and have generated significant momentum. Despite a lot of noise in the general economic landscape, it is a good time for us at Tronox, and we're bullish about the future, both the long-term future and the near term. We are well-positioned, relative to others in our space, to deliver significant profitability and cash flow across varying macroeconomic conditions.

Many of the key drivers to increase our profitability are within our control, such as delivering the synergies from the acquisition, optimizing our global operating footprint, taking advantage of our vertical integration, managing our overhead and wisely allocating our capital. We are indeed moving forward together as one new Tronox. We have a clear vision of what success looks like and clarity as to how we're going to get there. As we have said, our mission is to be the TiO2 equity offering of choice, displaying greater stability, financial performance and cash generation across cycles by utilizing our vertical integration and margin-stabilizing commercial approach.

We believe that the second quarter has been a very clear first step toward achieving that goal. With that, I thank you, and now, we like to open it up for your questions. Chris?

Questions & Answers:


Operator

[Operator instructions] And our first question comes from the line of Duffy Fischer with Barclays.

Duffy Fischer -- Barclays -- Analyst

First question is just around the guidance. So you did about $341 million in the first half. Low end of the guidance is we'll, call it, $640 million, so you've got about $300 million in the back half. That would be $150 million a quarter, and you're coming off a quarter where you just did $200 million of EBITDA.

So that step-down of 25% on a quarterly run rate seems pretty large given the synergies running though. Can you just walk through what drives that step-down?

Tim Carlson -- Chief Financial Officer

Duffy, the number that you quoted for the first half was what? I'm sorry

Duffy Fischer -- Barclays -- Analyst

$341 million is your pro forma, right, the $200 million at the second quarter and a $141 million in the first quarter?

Tim Carlson -- Chief Financial Officer

Yes. The guidance that we reported is on a reported basis, so the $61 million that you have included in the first half is not in our full-year number because it's a reported basis number, not a pro forma number.

Duffy Fischer -- Barclays -- Analyst

OK. Well, OK, So it still then would be about $30 million step-down quarter over quarter. Is that -- I mean, so again, I guess, just if you were to walk through kind of -- if we start with the second quarter, we've got more synergies coming in quarterly, but there does definitely seem to be a step-down in run rate profitability. How much of that is zirconium and how -- or zircon? And how much is TiO2?

Tim Carlson -- Chief Financial Officer

So the two components for it, we will see some additional synergies as we go through the back half of the year. As we go through the back half of the year, we'll also see the TiO2 seasonality with Q4 revenues coming down from Q3. And then the zircon market, we've built into our forecast a little bit of softness, but it is relatively flat. And if you look at the guidance that we provided, the full-year guidance of the $635 million to the $740 million, that's guiding to the lower half of that.

It really equates to a relatively level EBITDA performance Q2 to Q3 and then a slight $20 million to $30 million step-down in Q4 just given the nature of our business.

Duffy Fischer -- Barclays -- Analyst

OK. And then second one, just on raw materials. Now again, it doesn't affect you directly as much anymore since you're integrated. Obviously, it will affect your competitors.

How do you see kind of low-end and high-end ore prices moving over the next year?

Jean-Francois Turgeon -- Chief Operating Officer

Well, maybe, Duffy, I can answer this one. It's JF. We see a very tight market in the high-grade feedstock side of the business. So for everything that you can call slag or natural rutile, synthetic rutile, it's a very tight supply/demand market.

In the ilmenite market, we see a balance supply/demand situation, and with that a, more homogeneous price for those products.

John Romano -- Chief Commercial and Strategy Officer

Yes. The price for ilmenite hasn't moved much since the numbers we kind of reported on investor day, so it's been relatively stable.

Operator

And our next question comes from the line of John McNulty with BMO Capital.

John McNulty -- BMO Capital Markets -- Analyst

So I guess, the first one, on the synergies that you realized, I mean, you're clearly at least a little bit ahead of schedule, which is great. I guess can you give us an update as to how you're thinking about the year-end run rate and if that's going to also continue to stay ahead of schedule or if you kind of settle in more toward your original plan?

Jean-Francois Turgeon -- Chief Operating Officer

Look, I see that it's good to be ahead, and obviously, we're working hard to try to remain ahead. But the guidance that we gave you in May at our investor day are still, I mean, our best guess of where we are. So we forecast to be at $45 million deliver at the end of 2019. And obviously, the run rate will be higher, so we can hit the 120 for the full year of 2020.

But look, what -- as Jeff mentioned in his comment, every day, we found new projects and new initiatives that we didn't thought were there, and that helped making sure that we will maintain this slightly ahead of where we want to be on the synergy.

Jeff Quinn -- Chairman and Chief Executive Officer

Yes. And John, one of the -- now obviously, one of the ways we realize we can create significant value is pulling forward that synergy capture, and that's a focus that we have each and every day. And as we progress through the year, we'll continue to update on that. And certainly, as we get toward the end of the year, we'll provide even a more detailed reconciliation of all the various buckets in terms of --

John McNulty -- BMO Capital Markets -- Analyst

Got it. OK. And then just as a follow-up. I guess you had a lot of optimism around interest in your kind of margin-stabilization program post the close of the transaction, I guess.

Can you give us an update as to where you stand there and how much, in terms of incremental interest, you have been seeing since the close?

John Romano -- Chief Commercial and Strategy Officer

Yes. So this is John Romano. And as we mentioned briefly on the call, we are getting traction on these margin-stability initiatives, I'd say, more so than we reported on investor day. Again, it's something that's going to take time.

It's not going to happen overnight, but we're getting traction in both plastics and coatings markets. And that's not just in the Americas, so it's in other regions of the world as well. And so -- and when we think about how we're going about that, we're actually targeting strategic accounts where our intent is to grow there. And to the extent we have an offering on our margin stability that is more attractive than our competitors, we are actually picking up business on long-term contracts.

So that's kind of the summary on that.

Operator

And our next question comes from the line of Frank Mitsch with Fermium Research.

Frank Mitsch -- Fermium Research -- Analyst

Congratulations on the Gingko restart. I know that that was a source of some consternation in the investment community, so good to have that out of the way. We're seeing that out of China, some price increases announced on TiO2. I think it's $50 a ton across the board.

Where do you stand on price increases? And just, in general, what is your expectations on TiO2 prices in the back half of this year?

John Romano -- Chief Commercial and Strategy Officer

Hey, Frank. It's John Romano. So we -- as recently as this weekend, there has been some movement with regards to people talking about price increases in China. That's on the back of what we saw in the last couple of months with some downward movement on pricing.

So one of the things, as a new company, we now have a much better visibility into the China market because we have an asset over there. So I think some of what's driving the price increase announcements more recently is that China's golden year, which is their 70th anniversary of the founding of the People's Republic of China, starts in October. That's the first full week of October, and there's a lot of prep going on in front of that, and that preparation is slated to start as early as September. So as you start creeping into the end of the year where the environmental regulations tighten up any way, there are planned outages that are going to take place.

And I think that's putting some pressure on lower inventories, and ultimately, a drive to try to get additional pricing. As far as the balance of our market, we have been working to increase prices. I'm not going to give a whole lot of color on exactly how we've done on that, but what I can say is that, in the third quarter, we did have some success on pricing in Asia and Europe, and we're continuing to focus on improving pricing as we move forward, that being said, just like pricing hasn't been moving down significantly over the last four quarters, we don't expect significant price movement up in the -- on pricing either, and that's in line with our margin-stability initiatives.

Frank Mitsch -- Fermium Research -- Analyst

So, John, so should I take that to mean that prices in 3Q are going to be flat to possibly up slightly sequentially from 2Q?

John Romano -- Chief Commercial and Strategy Officer

That's a good assessment.

Frank Mitsch -- Fermium Research -- Analyst

All right. Terrific. And then you characterized some of the softness on the zircon market in owing to some of the macroeconomic softness in China, I guess. What percent of China is your zircon sales?

John Romano -- Chief Commercial and Strategy Officer

Well, demand for China is about -- for zircon is about half on ceramics, so it's a big part of it, and it's not only in China. That's the biggest area where we're seeing kind of a slowdown, but it's in Europe as well. So as Jeff said and I think I referenced, our sales moving into the second half is going to be around the same kind of profile we had in the first half, maybe slightly higher, where we would have previously forecasted a little bit stronger volume in that second half. The second quarter was also -- normally, I'm making comments about shipment timing have a negative -- having a negative impact on our quarterly volume.

In Q2, it actually had a positive impact on our volume based off a roll-off in the previous quarter. So we still are very optimistic about zircon moving forward in the mid to long term. But in the short term, I think China is driving a lot of trepidation in some of our customers' minds around what might happen.

Frank Mitsch -- Fermium Research -- Analyst

All right. Fair enough. So the way I should think about it is volumes may be on the weak side, but pricing is still stable on the zircon side.

John Romano -- Chief Commercial and Strategy Officer

Yes. We don't see a lot of movement on pricing, and I would say volume is relatively stable.

Operator

And our next question comes from the line of Hassan Ahmed with Alembic Global.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Really good volume growth sequentially on the pigment side, up 17% but sort of more or less normal-ish year-over-year growth. So I'm just trying to figure out this sequential uptick you guys saw in TiO2 volumes. Was that primarily a result of like you guys sort of alluded to in the release, the destocking phase being behind us? I mean, was that where the bulk of that volume growth came from? Or was there some element of market share gains baked in there as well?

John Romano -- Chief Commercial and Strategy Officer

Yes. Thanks for that. Look, there were a variety of reasons for that uptick. First, as I mentioned, the seasonal uptick in demand, it always occurs in Q2 compared to Q1, although that was a bit muted this year due to the slower start to the coding season.

There was also the pickup in demand that we saw in Q2, reflecting the completion of the destocking in Europe and Asia. And as a combined company that was a bit more significant due to our larger footprint in Europe. And then the impact of the legacy Cristal market adjustments to regain share that started in the second half of 2018 which had an impact on our volume moving into the first half of the year. And lastly as I mentioned just a minute ago, our margin stability initiatives.

Again we're targeting customers with these unique initiatives. In some instances our value proposition is more attractive than our competition and we are securing contracts for larger volume but not on the back of price.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Understood, understood. Now on the feedstock side, again sequentially pro forma revenue is up 19%. It seems to me that the bulk of that sort of uptick came from high grade ore pricing improvement because obviously you guys talked about the sort of volume increment on the CP slag side being offset by volume declines in the ilmenite side. And obviously you pointed out why those volumes declined in ilmenite, obviously using it for internal sort of purposes and alike.

So -- and it also seems that you sounded quite positive about a continuation of pricing increments on the high grade ore site. So a two-part question. One is do you continue to see even in this sort of erratic macro environment a supply demand tightness in a high grade through '19 into '20? And the second part of that is that obviously you guys must have between yourself and legacy Cristal some legacy contracts in place. Have most of those legacy contracts expired? I mean if you could just give me a sense of what percentage of business is being done sort of at market price.

John Romano -- Chief Commercial and Strategy Officer

So as far as legacy contracts, we only have one contract on high-grade feedstock, and that is with the company that acquired Ashtabula, that's by contract and the agreement we had with them. So that volume is actually lower than what we have sold historically. Timing of shipments had something to do with the uptick. But we -- ultimately we will be consuming long term all the feedstock internally.

So the contracts that we have right now I wouldn't say are old legacy, they're relatively new. But there is only one of them.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Understood. And just about pricing prospects just for high grade ore '19 into '20, even in this sort of uncertain macro?

John Romano -- Chief Commercial and Strategy Officer

Yes, look, at this particular stage we would continue to see upward movement on pricing for high grade feedstock. We're in the market also for high grade feedstock and we're continuing to see pressure on the upside.

Jeff Quinn -- Chairman and Chief Executive Officer

Yes, the tightness in the market as JF said earlier.

Operator

And our next question comes from the line of Jeffrey Zekauskas with J.P. Morgan.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

What were operating rates at Yanbu a month ago and what are they now? And can you talk about the changes that are going on at that facility?

Jean-Francois Turgeon -- Chief Operating Officer

So Jeff, it's JF here. Look Yanbu at the moment is the asset where we want to increase the quality. So our focus has not been on volume but our focus has been on quality to really change the perception of our customer of what can be produced in Yanbu. And remember at investor day I made that comment that with the last 20 year we have improved significantly Hamilton product and Yanbu is a copy of Hamilton.

And we have very easy change that we have put in place to significantly lift the quality out of Yanbu. Well we will obviously adjust the volume based on the demand and based on [Inaudible] possibility of selling more material. And that's always been our strategy to adjust our production to the market demand. And I think I'd like to make the comment because I heard that comment from some of our competitor, I believe that we probably have the best capability to increase production as needed with no capital requirement because what we have done in our legacy Tronox plan by what I call delivering the hidden factory, well, that's why we did the deal, to be able to deliver the hidden factory out of the legacy Cristal asset.

But we'll do that as the market requests this new tonnage.

Jeff Quinn -- Chairman and Chief Executive Officer

Jeff, you'll remember at investor day we talked a lot about the unified commercial approach being such a critical part of our strategy going forward. And we talked about how we would feather into the market as the market demanded it, incremental production that we have from the legacy Cristal operations. And that's exactly what we're doing. And because it is a commercial-driven strategy, that quality need in the market and the market being receptive to a higher quality product coming out of Yanbu has been a very early focus of ours and we have made progress in that regard.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

So maybe just to reask it. How long do you think it will take you to get Yanbu quality up to standard? If you can forecast that. Will you have that done by the end of the year? Or it's too hard to know?

Jean-Francois Turgeon -- Chief Operating Officer

Well, it's a range of change. And I can tell you that there is some action that we have took that already have increased some of the product out of Yanbu. There is grade that are legacy Tronox grade that we want to start producing in Yanbu that we expect to produce in 2020. So I'd say that it's hard to answer with a very fixed number of month.

But I can tell you that there is already product that is better than it was out of Yanbu after three months. And I'd say within the next year we'll continue to add new grade and new product.

John Romano -- Chief Commercial and Strategy Officer

Yes, and Jeff, there is no silver bullet now there at Yanbu. As we knew, it's the combination of dozens of projects and initiatives that will improve the quality and liberate the incremental volume over time. And we are systematically and thoughtfully pursuing those. And the team there that we put in place with some of the help and expertise from our global operations and the energized team there at Yanbu we feel really good about the path there and the progress we've made.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

OK. Just a financial question. What's your share count after you factor in all of repurchases that you've made thus far? And I realize that there is a difference between the average share count and the actual share count. But if you made no more share repurchases what would your share count be either in the third quarter or in the fourth quarter?

Tim Carlson -- Chief Financial Officer

About $142 million, Jeff.

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

$142 million. And how much -- are there further share repurchases that you expect to make to the end of the year?

Tim Carlson -- Chief Financial Officer

The $100 million that the board authorized back in June, that authorization was within the 10% limitation permitted under Section 382 of the code. So we can go above that without jeopardizing 382. That obviously resets again next year. So as of now there is no anticipated repurchases beyond what we've already announced.

Operator

And our next question comes from the line of Jim Sheehan with SunTrust.

Jim Sheehan -- SunTrust Robinson Humphrey -- Analyst

So TiO2 prices have stabilized at a higher level in this cycle than in previous [Inaudible]. Do you credit your margin stability discipline for that? And how sustainable might that pricing stability be? Do you have any concern that competitors will reverse their stability strategies and disrupt the market in order to regain market share?

John Romano -- Chief Commercial and Strategy Officer

Yes, look, so I do -- and I think we mentioned this previously. I do think that the initiatives on margin stability have had an impact on this last minicycle because typically you'll get pricing that will drop quarter to quarter far in excess of 1% in a down cycle and over the last several quarters we've had 1%-ish price decline, and in this particular quarter our pricing stabilize. So I do believe that margin stability initiatives have had a positive impact. And I also believe that as we move forward I can't predict or understand exactly what my competitors are going to do, but I do believe that there's enough momentum with margin stability out there that as we move forward it's our expectation that this will continue and it's is going to drive positive results for Tronox.

Jim Sheehan -- SunTrust Robinson Humphrey -- Analyst

Great. And could you give us some more color on the Cristal reporting issue? So is it true that inventory was not actually overstated and therefore we should not expect a true up?

Tim Carlson -- Chief Financial Officer

Yes, the inventory balances was within the accounting guidelines. The EBITDA that we talked about as being reported on investor day was $63 million. The pro forma adjusted EBITDA was $61 million. So the concern that we had on working capital ended up all being within the accounting guidance.

Operator

And our next question comes from the line of Vincent Andrew with Morgan Stanley.

Steven Haynes -- Morgan Stanley -- Analyst

This is actually Steven Haynes on for Vincent. Maybe just at the industry level on the demand side, what kind of underlying volume assumptions are baked into the back half guidance for 2019 and then kind of going into 2020? And maybe any changes to that outlook given the macro uncertainty you guys are setting.

John Romano -- Chief Commercial and Strategy Officer

Yes, so as we look into the back half of the year, our forecast has the second half looking very similar to the first half, there might be a little upside. And moving into 2020, as our position hasn't really changed much, it's in the 3%-ish range '19 to '20 on growth.

Operator

And our next question comes from the line of Roger Spitz with Bank of America.

Roger Spitz -- Bank of America Merrill Lynch

Can you provide Cristal's Q3 '18 pro forma, pro forma without [Inaudible] sales and EBITDA and that of Q4? We have the 2H '18 numbers but want to see if we can get a quarterly breakdown of the sales and pro forma EBITDA?

Tim Carlson -- Chief Financial Officer

Hey, Roger, I don't have that handy, my apologies, but we'll make sure we can get that out at some point.

Roger Spitz -- Bank of America Merrill Lynch

Thank you. So you lowered your EBITDA guidance a bit to the lower half of the range, but kept the free cash flow the same. Can you just comment on that and perhaps update us on the other items that you provide on the investor day for the cash flow items between EBITDA and free cash flow, capex, cash interest, etc., whatever might have changed?

Tim Carlson -- Chief Financial Officer

We'll be happy to, Roger. The favorability on the free cash flow line in slightly lower capital expenditures, slightly lower cash taxes, a little bit of improvement in the working capital. As you look at the full year as it relates to our free cash as reported our capital is probably going to be in the $230 million to $250 million range. Cash taxes in the $25 million to $40 million range.

And then working capital we expect a little bit of continued improvement as we drive some of our working capital initiatives with the combined company.

Roger Spitz -- Bank of America Merrill Lynch

Thank you. And lastly, what is the timing of the additional 14.7 million Tronox shares, as well as the 7 million Tronox South African shares that you might, at some point, be planning to acquire from Exxaro Resources?

Tim Carlson -- Chief Financial Officer

Yes. So Exxaro has the -- obviously the right to sell those shares whenever they should desire to sell those shares. Based upon the discussions we had with them with the last marketing request I anticipate that they would sell around the $14 and $15 range. I don't think they're a seller at the current prices.

If the stock does recover I would anticipate that we would get a marketing notice, that gives us 60 days to prepare. As it relates to the 7.2 million share flipping, Exxaro has the right as well to not accept our offer to flip those shares in. And given the indications that, they're looking at a $14 to $15 stock price. Even if we requested to flip that in, they wouldn't accept it.

So I would expect no activity until we see a recovery in the market.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Jeff Quinn for any closing remarks.

Jeff Quinn -- Chairman and Chief Executive Officer

Thank you, Chris. In summary, we're off to a good start for the new Tronox. We are well-positioned. We're bullish about the future.

We're focused and locked in on execution, and that's achieving results that are reflected in our results for the second quarter. We look forward to continue the dialogue with you as we move forward about the value we're creating, the capture of synergies and building the world's greatest TiO2 organization. We look forward to submitting our position as the TiO2 equity of choice and dialoguing with you about that as we move forward. So have a good day.

Thank you for your time this morning, and thank you for your continued interest in our company.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Brennen Arndt -- Senior Vice President of Investor Relations

John Romano -- Chief Commercial and Strategy Officer

Jean-Francois Turgeon -- Chief Operating Officer

Tim Carlson -- Chief Financial Officer

Jeff Quinn -- Chairman and Chief Executive Officer

Duffy Fischer -- Barclays -- Analyst

John McNulty -- BMO Capital Markets -- Analyst

Frank Mitsch -- Fermium Research -- Analyst

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Jeffrey Zekauskas -- J.P. Morgan -- Analyst

Jim Sheehan -- SunTrust Robinson Humphrey -- Analyst

Steven Haynes -- Morgan Stanley -- Analyst

Roger Spitz -- Bank of America Merrill Lynch

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