VALHI REPORTS FIRST QUARTER 2024 RESULTS

Rhea-AI Summary

Valhi, Inc. (NYSE: VHI) reported net income of $7.8 million in Q1 2024 compared to a loss of $4.9 million in Q1 2023. The Chemicals Segment's sales increased by 12% due to higher demand for TiO2, despite lower selling prices. The Component Products Segment saw a decrease in sales, while the Real Estate Segment experienced lower land sales revenue. Overall, operating income improved for the Chemicals Segment but decreased for the other segments.

Positive

• Increased net income of $7.8 million in Q1 2024 compared to a loss of $4.9 million in Q1 2023.

• The Chemicals Segment's net sales increased by 12% due to higher TiO2 sales volumes despite lower selling prices.

• Improvement in operating income for the Chemicals Segment due to higher sales and production volumes, lower production costs, and increased production rates.

Negative

• Decreased net sales for the Component Products Segment in Q1 2024 compared to the same period in 2023.

• Lower operating income for the Component Products Segment due to decreased sales and gross margin.

• Decrease in land sales revenue for the Real Estate Segment in Q1 2024 compared to the same period in 2023.

Insights

Financial Analyst

Valhi Inc.'s Q1 2024 results mark a significant turnaround with net income of $7.8 million compared to a net loss of $4.9 million in Q1 2023, representing an improvement of over $12 million. This shift from loss to profit is driven by a robust performance in the Chemicals Segment, which saw an increase in TiO2 sales volumes by 28% despite a 13% drop in average selling prices at the start of 2024, followed by an additional 2% decline during the quarter. The volume increase can be indicative of a recovering market demand for TiO2. Although the Component Products and Real Estate Management and Development Segments recorded decreased operating incomes, these were not significant enough to overshadow the gains made in the Chemicals Segment. Furthermore, a 12% revenue increase in net sales to $478.8 million in the Chemicals Segment is a positive sign that the company is effectively scaling up operations to match market demand, operating at 87% of capacity compared to 76% in the prior year. While the report mentions higher interest rates impacting both income and expenses, the overall financial health appears to be on an upward trajectory. However, investors should consider the lower average selling prices for TiO2 and their potential impact on future revenues should this trend continue. The production cost environment's favorability can be seen as a strategic advantage that may not be sustainable long-term, so monitoring this will be important for future expectations.

Market Research Analyst

The positive report from Valhi with its Chemicals Segment's performance is indicative of a broader recovery within the TiO2 market, which is critical for paints, coatings and plastics industries. Stronger demand in TiO2 is often linked to increased industrial production and construction activities, hinting at broader economic recovery signs. However, the decline in TiO2 average selling prices reflects competitive pressures and possibly shifts in supplier-buyer dynamics, which could squeeze margins if costs don't continue to stay favorable. Currency exchange rates benefiting the sales figures should be noted as a potential volatility factor in cross-border business operations. Investors should interpret the 15% increase in TiO2 production volumes as a strategic response to anticipated demand, which if sustained, could position Valhi favorably in the market. Nonetheless, the decrease in the pace of land sales revenue in the Real Estate Management and Development Segment should be carefully watched, as real estate often serves as a leading economic indicator. This mixed performance across segments suggests that while the chemicals business is thriving, other areas are not immune to external economic pressures, such as reduced development activities or weakened towboat market demand that's affected marine components sales. The diversification of Valhi's portfolio could be a buffer against these segment-specific risks.

Dallas, Texas, May 09, 2024 (GLOBE NEWSWIRE) -- Valhi, Inc. (NYSE: VHI) reported net income attributable to Valhi stockholders of $7.8 million, or $.27 per share, in the first quarter of 2024 compared to a net loss attributable to Valhi stockholders of $4.9 million, or $.17 per share, in the first quarter of 2023. Net income attributable to Valhi stockholders increased in the first quarter of 2024 as compared to the first quarter of 2023 primarily due to higher operating income from our Chemicals Segment partially offset by lower operating income from our Component Products Segment and our Real Estate Management and Development Segment.

The Chemicals Segment’s net sales of $478.8 million in the first quarter of 2024 were $52.5 million, or 12%, higher than in the first quarter of 2023. The Chemicals Segment’s net sales increased in the first quarter of 2024 compared to the first quarter of 2023 due to the net effects of higher sales volumes due to strengthening demand for TiO₂ in all the Chemicals Segment’s major markets and lower average TiO₂ selling prices. The Chemicals Segment’s TiO₂ sales volumes were 28% higher in the first quarter of 2024 as compared to the first quarter of 2023. The Chemicals Segment started 2024 with average TiO₂ selling prices 13% lower than at the beginning of 2023 and its average TiO₂ selling prices declined 2% during the first quarter of 2024. Average TiO₂ selling prices were 11% lower in the first quarter of 2024 as compared to the first quarter of 2023. Fluctuations in currency exchange rates (primarily the euro) also affected net sales comparisons, increasing the Chemicals Segment’s net sales by approximately $4 million in the first quarter of 2024 as compared to the same period in 2023. The table at the end of this press release shows how each of these items impacted the Chemicals Segment’s net sales.

The Chemicals Segment’s operating income in the first quarter of 2024 was $22.8 million as compared to an operating loss of $15.1 million in the first quarter of 2023. The Chemicals Segment’s operating income increased in the first quarter of 2024 compared to the same period in 2023 primarily due to the net effects of higher sales and production volumes, lower production costs (primarily energy and raw material costs) and lower average TiO₂ selling prices. TiO₂ production volumes were 15% higher in the first quarter of 2024 compared to the first quarter of 2023. The Chemicals Segment operated its production facilities at 76% of practical capacity utilization in the first three months of 2023 due to decreased demand and a higher production cost environment. Due to improved overall demand and a more favorable production cost environment, the Chemicals Segment increased its production rates to 87% of practical capacity utilization in the first three months of 2024. As a result, our Chemicals Segment’s unabsorbed fixed costs associated with production curtailments included in cost of sales decreased by $10 million to $12 million in the first quarter of 2024 compared to $22 million in the first quarter of 2023. Changes in currency exchange rates had a nominal effect on the Chemicals Segment’s operating income in the first quarter of 2024 as compared to the same period in 2023.

The Chemicals Segment’s operating loss in the first quarter of 2023 includes an insurance settlement gain related to a 2020 business interruption insurance claim of $1.7 million ($.9 million, or $.03 per share, net of tax and noncontrolling interest).

The Component Products Segment’s net sales were $38.0 million in the first quarter of 2024 compared to $41.2 million in the first quarter of 2023. The Component Products Segment’s net sales decreased in the first quarter of 2024 compared to the same period in 2023 due to lower marine components sales primarily to the towboat market, partially offset by higher security products sales to the government security market. Operating income attributable to the Component Products Segment was $3.7 million in the first quarter of 2024 compared to $7.0 million in the first quarter of 2023. The Component Products Segment’s operating income decreased in the first quarter of 2024 compared to the same period in 2023 predominantly due to lower marine components sales and gross margin.

The Real Estate Management and Development Segment had sales of $13.8 million in the first quarter of 2024 compared to $25.2 million in the first quarter of 2023. Land sales revenue is generally recognized over time based on cost inputs, and land sales revenues are dependent on spending for development activities. Land sales revenues are also impacted by the relative timing of when new land parcel sales are closed. Land sales revenues in the first quarter of 2024 decreased compared to the first quarter of 2023 due to the decreased pace of development activity for previously sold parcels within the residential/planned community. The pace of development activities is dictated by a number of factors such as city permit and design approval and labor and materials availability.

Corporate expenses in the first quarter of 2024 were comparable to the first quarter of 2023. Interest income and other increased $.8 million in the first quarter of 2024 compared to the first quarter of 2023 primarily due to higher average interest rates. Interest expense increased $4.3 million in the first quarter of 2024 compared to the first quarter of 2023 primarily as a result of higher interest rates on the Chemicals Segment’s refinanced debt in February 2024. In addition, interest expense for the first quarter of 2024 includes a charge of $1.5 million ($.7 million, or $.03 per share, net of tax and noncontrolling interest) for the write-off of deferred financing costs at our Chemicals Segment.

The statements in this press release relating to matters that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Although we believe the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those predicted. While it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause our actual future results to differ materially include, but are not limited to, the following:

• Future supply and demand for our products;
• The extent of the dependence of certain of our businesses on certain market sectors;
• The cyclicality of certain of our businesses (such as Kronos’ TiO₂ operations);
• Customer and producer inventory levels;
• Unexpected or earlier-than-expected industry capacity expansion (such as the TiO₂ industry);
• Changes in raw material and other operating costs (such as ore, zinc, brass, aluminum, steel and energy costs);
• Changes in the availability of raw materials (such as ore);
• General global economic and political conditions that harm the worldwide economy, disrupt our supply chain, increase material and energy costs, reduce demand or perceived demand for TiO_2, component products and land held for development or impair our ability to operate our facilities (including changes in the level of gross domestic product in various regions of the world, natural disasters, terrorist acts, global conflicts and public health crises);
• Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, certain regional and world events or economic conditions and public health crises);
• Technology related disruptions (including, but not limited to, cyber-attacks; software implementation, upgrades or improvements; technology processing failures; or other events) related to our technology infrastructure that could impact our ability to continue operations, or at key vendors which could impact our supply chain, or at key customers which could impact their operations and cause them to curtail or pause orders;
• Competitive products and substitute products;
• Customer and competitor strategies;
• Potential difficulties in integrating future acquisitions;
• Potential difficulties in upgrading or implementing accounting and manufacturing software systems;
• Potential consolidation of our competitors;
• Potential consolidation of our customers;
• The impact of pricing and production decisions;
• Competitive technology positions;
• Our ability to protect or defend intellectual property rights;
• The introduction of trade barriers or trade disputes;
• The ability of our subsidiaries to pay us dividends;
• Uncertainties associated with new product development and the development of new product features;
• Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone and the Canadian dollar and between the euro and the Norwegian krone) or possible disruptions to our business resulting from uncertainties associated with the euro or other currencies;
• Decisions to sell operating assets other than in the ordinary course of business;
• The timing and amounts of insurance recoveries;
• Our ability to renew, amend, refinance or establish credit facilities;
• Increases in interest rates;
• Our ability to maintain sufficient liquidity;
• The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform;
• Our ability to utilize income tax attributes, the benefits of which may or may not have been recognized under the more-likely-than-not recognition criteria;
• Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities, or new developments regarding environmental remediation or decommissioning obligations at sites related to our former operations);
• Government laws and regulations and possible changes therein (such as changes in government regulations which might impose various obligations on former manufacturers of lead pigment and lead-based paint, including NL, with respect to asserted health concerns associated with the use of such products) including new environmental, health, safety, sustainability or other regulations (such as those seeking to limit or classify TiO₂ or its use);
• The ultimate resolution of pending litigation (such as NL’s lead pigment and environmental matters);
• Our ability to comply with covenants contained in our revolving bank credit facilities;
• Our ability to complete and comply with the conditions of our licenses and permits;
• Changes in real estate values and construction costs in Henderson, Nevada; and
• Pending or possible future litigation or other actions.
  
  

Should one or more of these risks materialize (or the consequences of such development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.

Valhi, Inc. is engaged in the chemicals (TiO₂), component products (security products and recreational marine components) and real estate management and development industries.

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Investor Relations Contact

Bryan A. Hanley
Senior Vice President and Treasurer
Tel. 972-233-1700

VALHI, INC. AND SUBSIDIARIES

CONDENSED SUMMARY OF OPERATIONS
(In millions, except earnings per share)

		Three months ended
		March 31,
		2023			2024
		(unaudited)
Net sales
Chemicals		$	426.3		$	478.8
Component products			41.2			38.0
Real estate management and development			25.2			13.8
Total net sales		$	492.7		$	530.6
Operating income (loss)
Chemicals		$	(15.1)		$	22.8
Component products			7.0			3.7
Real estate management and development			10.6			5.0
Total operating income			2.5			31.5
General corporate items:
Interest income and other			4.9			5.7
Other components of net periodic pension and OPEB expense			(1.2)			(.6)
Changes in market value of Valhi common stock held by subsidiaries			(1.1)			.5
General expenses, net			(7.9)			(7.8)
Interest expense			(7.0)			(11.3)
Income (loss) before income taxes			(9.8)			18.0
Income tax expense (benefit)			(6.1)			4.4
Net income (loss)			(3.7)			13.6
Noncontrolling interest in net income of subsidiaries			1.2			5.8
Net income (loss) attributable to Valhi stockholders		$	(4.9)		$	7.8
Amounts attributable to Valhi stockholders:
Basic and diluted net income (loss) per share		$	(.17)		$	.27
Basic and diluted weighted average shares outstanding			28.5			28.5

VALHI, INC. AND SUBSIDIARIES
IMPACT OF PERCENTAGE CHANGE IN CHEMICAL SEGMENT'S NET SALES
(unaudited)

		Three months ended
		March 31,
		2024 vs. 2023
Percentage change in TiO2 net sales:
TiO2 sales volumes		28	%
TiO2 product pricing		(11)
TiO2 product mix/other		(6)
Changes in currency exchange rates		1
Total		12	%

FAQ

What was Valhi's net income in Q1 2024?

Valhi reported a net income of $7.8 million in the first quarter of 2024.

Why did the Chemicals Segment's net sales increase in Q1 2024?

The Chemicals Segment's net sales increased due to higher TiO2 sales volumes despite lower selling prices.

What caused the decrease in land sales revenue for the Real Estate Segment in Q1 2024?

The decrease in land sales revenue was due to the decreased pace of development activity for previously sold parcels within the residential/planned community.