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Here's Why Kronos Worldwide Stock Slumped Today

By Maxx Chatsko - May 9, 2018 at 1:36PM

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The company reported first-quarter 2018 operating results.

What happened

Shares of Kronos Worldwide (KRO 6.67%) plunged on Wednesday after the company announced first-quarter 2018 results. The titanium dioxide manufacturer reported strong growth compared to the year-ago period thanks to the continued surge in selling prices. Revenue was up 16% and net income nearly doubled relative to the first quarter of 2017. How can Wall Street be displeased with that? 

Well, planned maintenance and the implementation of a new global enterprise resource planning system led to a 13% decrease in total sales volumes. Believe it or not, investors are upset because the first quarter of 2018 could have been even better if not for those impediments.

As of 1:01 p.m. EDT, the stock was down 11%.

A chart with a negative slope drawn on a chalkboard.

Image source: Getty Images.

So what

Shareholders don't have too much reason to be unhappy with the performance in the most recent three-month period. Kronos Worldwide blew away its year-ago results. 

Metric

Q1 2018

Q1 2017

Change (YOY)

Revenue

$430 million

$370 million

16%

Gross profit

$175 million

$106 million

65%

Operating income

$107 million

$56 million

91%

Net income

$71 million

$37 million

92%

Production volumes

133,000 metric tons

145,000 metric tons

(8%)

Sales volumes

125,000 metric tons

143,000 metric tons

(13%)

Data source: Press release. YOY = year over year.

Scheduled maintenance is a necessary reality for manufacturing companies. While it knocks profit-generating facilities offline temporarily, it allows engineers to install new equipment and even make slight process tweaks to boost performance once production restarts. That said, the temporary disruption Kronos Worldwide encountered in the first quarter of 2018 wasn't quite as devastating as today's stock movement seems to indicate.

The company's facilities turned in a solid 95% operating rate, which would have been a healthy level even without scheduled maintenance baked in. The only "problem" is that facilities operated at full tilt -- an unheard-of 100% operating rate -- in the first quarter of 2017 to take full advantage of higher selling prices. That resulted in record production in the year-ago period, and explains much of the difference in output.

To be fair, it would have been nice to see higher sales volumes by digging deeper into inventory, but that just wasn't possible, as the company encountered short-term delays implementing new resource planning software. The new system should lower operating costs in future periods.

Now what

Sure, Kronos Worldwide could have delivered an even stronger performance in the first quarter of 2018 had it been able to sell higher volumes of titanium dioxide. But that doesn't change the fact that it almost doubled net income. Or that titanium dioxide prices remain elevated. This is still a top titanium stock, and may be worth a closer look following the recent slide in share price.

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Kronos Worldwide, Inc. Stock Quote
Kronos Worldwide, Inc.
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