Kraton announces lower second quarter results

Houston, TX – Kraton Corporation announced financial results for the quarter ended June 30. Kraton reported consolidated net income of $38.4 million, compared to consolidated net loss of $7.1 million in the second quarter of 2020. Adjusted EBITDA of $61.8 million, down $7.7 million or 11.1 percent, compared to the second quarter of 2020. The $7.7 million decline in adjusted EBITDA reflects $16.9 million of costs associated with a significant turnaround at the Berre, France, site. Polymer segment operating income of $42.0 million, compared to $16.8 million in the second quarter of 2020, and adjusted EBITDA of $26.3 million, down $27.5 million or 51.1 percent compared to $53.8 million in the second quarter of 2020 were reported. The $27.5 million decline in adjusted EBITDA reflects $16.9 million of costs associated with the aforementioned turnaround, higher raw materials costs and the benefit of favorable raw material trends in the year ago quarter, partially offset by improved demand fundamentals and higher sales volumes. Chemical segment operating income of $22.0 million, compared to an operating loss of $3.9 million in the second quarter of 2020, and adjusted EBITDA of $35.5 million, up 126.2 percent compared to $15.7 million in the second quarter of 2020 were reported. Adjusted EBITDA increase reflects factors including higher sales volumes associated with improved demand and continued favorable market fundamentals resulting in higher average selling prices, partially offset by higher costs for raw materials. Reduced consolidated debt during the quarter by $14.1 million and consolidated net debt by $11.5 million, including the unfavorable effect of foreign currency of $6.3 million.

“We are pleased with our financial results for the second quarter of 2021, which were in line with our overall expectations. On a consolidated basis, second quarter adjusted EBITDA was $61.8 million, and while this was down $7.7 million compared to the second quarter of 2020, during the quarter, we incurred costs of $16.9 million associated with a significant statutory turnaround at our Berre, France, site, that occurs approximately every six years. Excluding the $16.9 million of turnaround costs, adjusted EBITDA would have been up compared to the year ago quarter. During the second quarter of 2021, continued favorability in global demand contributed to a strong rebound in sales volume in both our polymer and chemical segments, compared to the second quarter of 2020, in which demand was adversely impacted by COVID-19. Thus far in 2021, we have successfully implemented price increases intended to address inflation in raw materials and transportation and logistics costs. While inflation in raw material costs continued to be a factor in the second quarter of 2021, partially offsetting the benefit of higher sales volume and higher average selling prices achieved thus far, we continue to actively address inflationary pressures through price increases, consistent with our Price Right strategy. As such, we expect further price realization and margin improvement in the second half of this year,” said Kevin M. Fogarty, Kraton’s president and chief executive officer.

Second quarter 2021 adjusted EBITDA for the polymer segment was $26.3 million, down $27.5 million compared to the second quarter of 2020. While second quarter 2021 sales volume for the polymer segment was up 11 percent compared to the second quarter of 2020, reflecting strong post-COVID demand recovery, it is important to appreciate there were three major, but transitory, drivers that contributed to the decline in quarterly segment financial performance that we believe will not significantly impact results for the second half of 2021. Firstly, and as previously noted, $16.9 million of the $27.5 million decline in adjusted EBITDA is associated with costs of the significant statutory turnaround at the Berre, France, site. Secondly, and in contrast to a deflationary raw material environment that contributed to margin favorability in the second quarter of 2020, second quarter 2021 margins reflect continued inflation in raw material and transportation and logistics costs, which we are addressing through increases in selling prices. Lastly, second quarter 2020 adjusted EBITDA benefitted from favorable fixed cost absorption associated with a strategic inventory build to leverage historically low raw materials costs in the quarter. Specialty polymer sales volume increased 15 percent, compared to the second quarter of 2020, with higher sales volume in all regions, particularly into consumer durable and automotive applications in North America and Europe. Sales volume for performance products was up 13 percent compared to the second quarter of 2020, primarily due to higher sales into paving and roofing applications in North America and continued demand growth globally within adhesives applications.

Chemical segment adjusted EBITDA for the second quarter of 2021 was $35.5 million, up $19.8 million compared to the second quarter of 2020. The significant increase in adjusted EBITDA was driven by a 32 percent increase in sales volume, compared to the second quarter of 2020, reflecting a continued improvement of the chemical segment’s overall demand fundamentals, a healthy post-COVID demand recovery for TOFA and rosin and rosin derivatives and higher average selling prices, partially offset by higher raw materials and transportation and logistics costs. Performance chemicals sales volume was up 37 percent compared to the second quarter of 2020, reflecting strong demand for TOFA and TOFA upgrades. Adhesive sales volume was up 17 percent compared to the second quarter of 2020 on strong global adhesive demand, and sales volume for tires was up 108 percent compared to the year ago quarter, in which sales of tread enhancement agents were significantly impacted as tire customers idled capacity due to COVID-19.

“As evidence of progress in continuing to promote responsible and sustainable business practices throughout our organization, we are proud to note that Kraton recently achieved a Platinum rating for our sustainability management system from EcoVadis. The Platinum rating is the highest distinction in the EcoVadis supplier sustainability rating structure, and the Platinum rating places Kraton in the top one percent of all companies evaluated in its sector,” said Fogarty. “In terms of innovation-based products that are facilitating the circular economy, during the second quarter, we continued to see favorable customer response and positive momentum for our REvolution and CirKular+ platforms that are addressing growing market needs for sustainable solutions. Moreover, Kraton’s CirKular+ additives recently received Critical Guidance Recognition from the Association of Plastics Recyclers in recognition of Kraton’s ongoing commitment to provide sustainable, high-performance solutions to address the plastics industry’s needs for design recyclability,” added Fogarty.

“Our expectations for the balance of 2021 remain positive. We currently expect demand trends to remain favorable, and with continued implementation of our Price Right strategy expected to address raw material and logistics price increases, we anticipate meaningful margin improvement over the course of the third and fourth quarters. As we have now successfully completed the Berre turnaround, with costs known, and with better visibility into activity levels in the important summer paving season as we move into the third quarter, we now expect Adjusted EBITDA for the full year 2021 to fall within the range of $280 to $300 million,” said Fogarty.