Tronox Holdings plc Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Quarterly Performance: Third quarter results showed continued demand recovery but fell below expectations due to softer market conditions. TiO2 and zircon volumes declined, while operations achieved a targeted 80% pigment utilization rate but did not see cost benefits from lower cost inventory due to weaker demand.
• Operational Investments: Continued investment in assets, including extensions of South African mining projects (Fairbreeze expansion and Namakwa East OFS) to sustain vertical integration. Focus on R&D for product and process innovations, including sustainability-related initiatives.
• Market Outlook: Anticipate seasonal demand declines in Q4, with TiO2 volumes expected to decline 10%-15% and zircon demand flat. Pricing expectations moderated, with TiO2 pricing relatively flat and zircon pricing slightly down.

Segment Performance

• TiO2: Volumes declined 7% sequentially. Year-over-year, TiO2 revenues increased 10% (12% sales improvement offset by 2% price/product mix decline). Sequentially, TiO2 revenues decreased 6% due to a 7% volume decline, partially offset by a 1% price improvement from certain regions.
• Zircon: Volumes declined 12% sequentially. Year-over-year, zircon revenues increased 124% from trough levels (134% sales volume increase offset by 10% price/product mix headwind). Sequentially, zircon revenues declined 13% due to a 12% volume decrease and 1% price headwind.
• Other products: Revenue increased 61% year-over-year and 39% sequentially, driven by opportunistic sales of ilmenite and heavy mineral concentrate tailings.

Guidance

• Fourth Quarter: Expect adjusted EBITDA in the range of $120 million to $135 million, with adjusted EBITDA margin in the high teens. Capital expenditures expected to be approximately $380 million for the year, with free cash flow a slight use due to market outlook shift.
• Longer Term: Focus on vertical integration investments, resuming debt pay down as market recovers, and assessment of strategic high-growth opportunities, including the rare earth space.

Risks

• Market Demand: Softer-than-anticipated market conditions, particularly in Europe and Asia Pacific, impacting volumes and revenue.
• Competitive Dynamics: Intense competition, including from Chinese producers absorbing tariffs, affecting market share and pricing.
• Exchange Rates: Headwinds from currencies like the Aussie dollar and South African Rand, affecting financial performance.

Question and Answer

Q: Quantify the benefit of working through high-cost inventory and operational efficiency in 2025 A: Running at lower rates previously cost $25 million to $35 million per quarter, with operational efficiency and reliability initiatives expected to improve costs, though specific numbers not yet disclosed.

Q: Tariffs and competitive dynamics in regions like Brazil and China A: Brazil has provisional duties effective, with final duties expected in early 2025. China is absorbing duties, leading to competitive activity and repositioning of volumes.

Q: Inventory build and price outlook A: TiO2 inventory build due to seasonal demand, with zircon volumes flat. Pricing relatively flat in Europe and Asia, with competitive activity offsetting some price improvements.