Tronox Inc. (TROX)
Q4 2012 Earnings Call
February 21, 2013 8:30 AM ET
Brennen Arndt - Vice President, Investor Relations
Thomas Casey - Chairman and Chief Executive Officer
Daniel Greenwell - Senior Vice President and Chief Financial Officer
John Romano - Senior Vice President and President, Pigment and Electrolytic
Trevor Arran - Senior Vice President and President, Mineral Sands
Gregg Goodnight - UBS
Hassan Ahmed - Alembic Global
Hamed Khorsand - BWS Financial
Ian Corydon - B. Riley & Company
Michael Nolan - JPMorgan
Kieran Daly - Macquarie
Joseph Stauff - Susquehanna
Brian Reilly - Barclays
Richard Hatch - RBC
Good day, ladies and gentlemen, and welcome to the Tronox Limited Q4 2012 earnings conference call. (Operator Instructions) I would now like to introduce your host for today's conference call, Mr. Brennen Arndt. You may begin, sir.
Thank you, and welcome everyone to Tronox Limited fourth quarter 2012 conference call and webcast. With me today are Tom Casey, Chairman and CEO; and Dan Greenwell, Senior Vice President and Chief Financial Officer. Tom, will begin the call with a review of our performance. Dan will then report on our financial position. And following, Dan and Tom will provide our outlook and complete the call by taking your questions.
We'll be using slides today as we move through the conference call. Those of you listening via Internet broadcast on our website should already have them. And for those listening via telephone, if you haven't already done so, you can access them on our website at tronox.com.
Let me begin with a reminder that our discussion today will include certain statements that are forward-looking and subject to various risks and uncertainties, including but not limited to, the specific factors summarized in our Form S-4 dated May 4, 2012, our most recent Form 10-Q and other SEC filings. This information represents our best judgment based on today's information. Actual results may vary based on these risks and uncertainties, and the company undertakes no obligation to update or revise any forward-looking statements.
During the conference call, we will refer to certain non-U.S. GAAP financial terms, which we use in the management of our business including EBITDA and adjusted EBITDA and adjusted earnings per diluted share. EBITDA represents net income before net interest expense, income tax and depreciation and amortization expense. Adjusted EBITDA represents EBITDA as further adjusted for non-cash, unusual and non-recurring items, adjusted earnings per diluted share represents EPS adjusted for unusual or non-recurring items on a fully-diluted basis, a reconciliation is provided in our release.
And it's now my pleasure to turn the call over to Tom Casey. Tom.
Thanks, Brennen, and thank you all for joining us this morning. As you saw in the release we put out yesterday, our fourth quarter results came in generally as we had outlined to you a couple of weeks ago in our press release. While, the fourth quarter continued to challenging, we did report topline growth compared sequentially to the fourth quarter, which as we mentioned then was, we view as significant.
Our mineral sands segment sales increased 16% sequentially, despite the impact of three forecast iron ore shipments that were either delayed or cancelled in the fourth quarter and one of the shipments actually went on January 7. And for the first time since 2005, fourth quarter sales volumes in our pigment segment were higher than those of the third quarter, an increase of 2%. Though, this sequential difference was modest, we view it in what is normally a seasonally lower quarter as positive indication.
We also believe that the fourth quarter was essentially the material conclusion of the destocking period by our pigment customers. The integration of our pigment and mineral sands businesses continues to make great progress and is on or even ahead of plan, but as we reviewed with you previously, it's full advantages are not reflected in our financial performance, in part, because of the way that the accounting regulations cause us to treat in a company transactions. And I will talk about that more in a minute.
In the fourth quarter, as has been and will continue to be the case, our reported pigment segment margins reflected a 100% market priced feedstock purchase contracts. Our average cost of feedstock booked in the fourth quarter was $1,623 per metric ton. We believe this is a significantly higher price than other pigment producers who continue to benefit from under market priced feedstock purchased under legacy contracts.
However, as we've also discussed before, most of these legacy under market price contracts have or are expiring and our feedstock costs are moving in the opposite direction. There is significantly declining as a result of our acquisition. In 2003, almost all of our feedstock consumption will be internally produced and therefore we will fundamentally change our ore structure to our benefit, by capturing the margin that we previously paid out to unaffiliated suppliers.
As feedstock prices rise for the industry generally, it's obviously a significant advantage in our mind to have our feedstock cost going down, while our competitors are going up.
We believe a number of other factors will also contribute to a successful performance this year in our mineral sands segment. As we've mentioned before, we had a 140,000 metric tons of slag that we sold last year pursuant to a under market price contract that we entered into back in the bottom days, the dark days of the mineral sands business.
40,000 tons of that production is no longer under contract, that is our obligation to deliver it at below market prices expired at the end of 2012 and the balance, the 100,000 ton balance of that contract expires at the end of 2013.
Second, and as I'll explain this more in a minute, we are carrying approximately $57 million of mineral sands gross profit that has been reported at the segment level as profit margin, but has not been recorded as profit margin in our consolidated income statement. This will flow through our income statement at the Tronox Limited consolidated enterprise level income statement beginning in the first quarter as the pigment that was made from these mineral sands feedstock is sold.
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