Tronox Holdings plc Q3 FY2025 earnings call

• Quarter results were affected by weaker demand, greater-than-expected downstream destocking, and intense competitive dynamics in TiO2 and zircon markets. - Competitors' insolvency proceedings will benefit Tronox's future sales volumes but caused a short-term headwind in Q3 with more aggressive inventory liquidation at below-market prices. - Made progress in securing tariffs against Chinese dumping but faced an unexpected obstacle in India where a state court temporarily halted antidumping duties. - Zircon market faced greater-than-expected headwinds, especially in China. - Cost improvement program is ahead of schedule, on track to achieve over $60 million in annualized savings by the end of 2025 and $125 million to $175 million by the end of 2026. - Took operational actions to manage cash flow, such as temporarily idling the Fuzhou pigment plant, adjusting the Stallingborough pigment plant by lowering operating rates and accelerating planned maintenance, temporarily idling 1 furnace at the Namakwa smelter operation, and soon initiating a temporary shutdown of the West mine. - Actively engaged in the rare earth strategy, taking a 5% equity interest in Lion Rock Minerals in October.

Revenue was $699 million, a 13% decrease year-over-year. TiO2 revenues decreased 11% due to an 8% volume decline and 5% price drop, partially offset by a 2% exchange rate benefit. Zircon revenues fell 20% because of a 16% price decrease (including mix) and 4% volume drop, mainly in China. Other products' revenue decreased 21% compared to the prior year. TiO2 contributed by volume and price factors, zircon by price and volume, and other products by prior year sales volume differences.

• Expect Q4 2025 revenue and adjusted EBITDA to be relatively flat compared to Q3 2025, driven by weaker-than-anticipated pricing in TiO2 and zircon due to more aggressive market competition, partially offset by improving volumes in both TiO2 and zircon. - The sustainable cost improvement program is expected to exceed $60 million in run rate savings by the end of 2025. - For 2026, capital expenditures are expected to be less than $275 million. - Anticipates positive free cash flow in the fourth quarter of 2025 and in 2026.

• Weaker demand than forecasted. - Downstream destocking greater than expected. - Heightened competitive dynamics in TiO2 and zircon markets. - Temporary stay on India antidumping duties. - Zircon market pressure in China, including pricing and volume pressures.

Q: James Cannon asked about antidumping measures and volume guidance.

A: John Romano stated that while India's duties are currently stayed, there is high confidence they will be reinstated before year-end. TiO2 volumes are expected to increase 3% to 5% from Q3 to Q4, with October sales being the second largest month this year and November and December trending positively.

Q: Peter Osterland inquired about operating rates and cost savings.

A: John Romano mentioned the Fuzhou plant was idled to preserve cash and may remain offline, while Stallingborough's maintenance was brought forward and rates slowed but is expected to return to full rate in Q4. John Srivisal discussed the sustainable cost improvement program with over 2,000 ideas identified and progress in fixed and variable cost reductions.

Q: Vincent Andrews' representative asked about free cash flow and assumptions.

A: John Romano and John Srivisal talked about free cash flow drivers including the cost improvement program, inventory reduction, reduced CapEx, and the impact of dividend changes. They also discussed destocking and normalizing buying patterns in the fourth quarter.

Q: Roger Spitz asked about working capital and free cash flow.

A: John Romano and John Srivisal updated that Q4 working capital is expected to be a slight source of cash, with free cash flow expected to be positive, and there is ample liquidity to avoid triggering the revolver covenant.

Q: Frank Mitsch asked about price headwinds.

A: John Srivisal said TiO2 pricing is expected to improve as destocking has mostly occurred and demand patterns are normalizing, while zircon demand is showing signs of pickup in the fourth quarter.

Q: Edward Brucker asked about the cash cost of idling facilities.

A: John Romano and John Srivisal explained the $11 million impact in Q4 from idling facilities, but it is offset by a positive cash benefit of $25 million to $30 million, resulting in positive free cash flow in Q4.

Q: Hassan Ahmed asked about China TiO2 capacity and anti-involution.

A: John Romano discussed China TiO2 capacity consolidation, state-owned enterprises, and the temporary nature of duties with a 5-year sunset, emphasizing the importance of cost efficiency. He also confirmed India's antidumping duties were delayed due to a procedural error and will be reinstated.