Kraton shares slump on cut in earnings outlook

Houston, Texas – Due to a sharp decline in trading conditions, Kraton Corp. now expects full-year 2019 earnings (adjusted EBITDA) to come in 10-15% below the lower end of the $370-390-million range it previously forecast.

The downgrade, issued 10 Oct, prompted an approximate 30% drop in Kraton’s NYSE share price: falling from a prior-week close of $31.99 to $21.47 at the end—f-trading last week (11 Oct). 

Despite stable market indications in July, “demand in China and broader Asia, and more recently in Europe and North America, weakened notably as the third quarter of 2019 progressed,” said president and CEO Kevin Fogarty. 

These developments “adversely impacted” both Kraton’s polymer and chemical segments,” Fogarty also noting a continued deterioration in market demand in China and Asia linked to ongoing trade tensions and tariff impositions.

Kraton’s boss went on to note weakening demand in Europe, particularly for automotive and compounding applications, in the third-quarter. This impacted the Polymer segment sales of HSBC (hydrogenated styrene butadiene copolymer) grades. 

Results for Kraton’s Polymer segment were also impacted particularly by soft paving and roofing demand – reflecting elevated customer inventories after a weak second quarter, “ample” market supply and intensified competition.

The company’s Chemical segment was, meanwhile, hit by an accelerated decline in pricing for certain ‘upgraded products’ in its crude sulphate turpentine chain and a 40% drop in global pricing for gum turpentine products. 

Kraton also saw weaker demand and pricing in rosin end markets such as adhesives and road marking. This, it linked to increased softness in gum rosin pricing, which declined by over 20% in the third quarter.

According to the company, the market is now experiencing a more broad-based global economic slowdown which is unlikely to reverse by the yearend 

Kraton has, therefore, “taken proactive measures on cost management, cash flow optimisation and capital allocation,” said Fogarty. 

And, commenting on the strategic review of Kraton’s Cariflex business, Fogarty said the process was “still ongoing, and we are targeting completion of the review process within the next few weeks.”