On Monday, Goldman Sachs reiterated its Buy rating on shares of TRONOX (NYSE: NYSE:TROX) with a steady price target of $15.00. The company reported its third-quarter 2024 adjusted EBITDA at $143 million, which fell short of the Bloomberg consensus and its own guidance midpoint of approximately $155 million.
The underperformance was attributed to weaker-than-expected Titanium Dioxide (TiO2) volumes, which decreased by 7% compared to the forecasted 2-4% sequential downturn.
TRONOX's pricing remained stable, with a sequential increase of 1%, despite the volume setback. However, Zircon volumes did not meet expectations, showing a 12% decline against the company's anticipation of no change from the previous quarter. The shortfall in Zircon sales was partially due to weaker demand from Chinese construction and some sales being deferred to the fourth quarter.
Looking ahead, management has set a fourth-quarter EBITDA guidance midpoint at $124 million, which is below the Bloomberg consensus of $159 million. TiO2 volumes are projected to fall by 10-15% sequentially, with EBITDA margins anticipated to be in the high teens due to subdued TiO2 demand. The company plans to maintain its pricing discipline in the upcoming quarter. Zircon sales are expected to remain unchanged sequentially.
The company's outlook for 2025 assumes a macroeconomic recovery and benefits from Chinese anti-dumping duties. However, recent conversations with coatings customers have indicated a more restrained expectation for macro recovery next year.
The company acknowledges that challenging volume conditions could persist into the following year if there is no significant improvement in end market demand and macroeconomic factors. There's a possibility that prices could decline more than expected in the first half of 2025, notwithstanding the potential advantages from anti-dumping measures.
In other recent news, Tronox Holdings Plc reported a mixed bag of results for its third quarter. The global chemical company saw an increase in revenue to $804 million, marking a 21% rise from the previous year, despite a decline in demand, particularly in Europe and Asia Pacific.
However, the company's adjusted EBITDA fell slightly short of expectations, landing at $143 million, and a net loss of $25 million was reported, along with an adjusted diluted loss per share of $0.13.
Tronox also revealed that it anticipates a decline of 10% to 15% in TiO2 volumes in the fourth quarter, while zircon demand is expected to remain stable. The company plans to allocate $380 million towards capital expenditures, with a strategic focus on growth in South Africa. Meanwhile, Tronox maintains a robust balance sheet with $668 million in available liquidity and a net debt of $2.7 billion.
The company also outlined its future strategy, which includes a focus on liquidity, debt reduction, and strategic growth opportunities, particularly in the rare earth sector. Despite the weaker-than-expected demand in Europe and Asia Pacific, Tronox remains strategically positioned to gain market share without resorting to price reductions. These are the recent developments at Tronox Holdings Plc.
InvestingPro Insights
To provide additional context to TRONOX's recent performance and outlook, let's examine some key financial metrics and insights from InvestingPro. Despite the company's recent challenges, InvestingPro Tips suggest that TRONOX's net income is expected to grow this year, and analysts predict the company will remain profitable. This aligns with the company's anticipation of a macroeconomic recovery in 2025.
However, it is worth noting that TRONOX's stock has taken a significant hit over the last week, with a 1-week price total return of -8.82%. This decline likely reflects the market's reaction to the company's Q3 underperformance and lowered Q4 guidance. The stock's volatility is further emphasized by its 6-month price total return of -27.91%, indicating ongoing investor concerns about the company's near-term prospects.
On a positive note, TRONOX has maintained dividend payments for 13 consecutive years, with a current dividend yield of 4.03%. This commitment to shareholder returns may provide some stability for investors during this period of uncertainty. Moreover, the company's liquid assets exceed short-term obligations, suggesting a solid financial position to weather current market challenges.
For investors considering TRONOX's valuation, the stock is trading at a P/E ratio of 46.73, which may seem high at first glance. However, when adjusted for near-term earnings growth, the PEG ratio stands at a more favorable 0.42, potentially indicating an undervalued stock relative to its growth prospects.
InvestingPro offers 10 additional tips for TRONOX, providing a more comprehensive analysis for those interested in delving deeper into the company's financial health and market position.
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