Trinseo (TSE) is down 17% at a thirteen-month low after the company warned about third quarter results last night.
The company lowered third quarter net income guidance to $74-80 million from $88-96 million and adjusted EBITDA to $140-146 million from $150-160 million.
Net income is expected to be below previously issued guidance by ~$15 million with about $9 million from operating performance and about $6 million from one-time expenses primarily consisting of costs related to the project to insource administrative services.
The operational results include Feedstocks segment Adjusted EBITDA that is ~$20 million higher than previously issued guidance due to better than expected styrene margins in Europe and Asia in the latter part of the quarter.
However, results in the Latex Binders, Synthetic Rubber, Performance Plastics, and Polystyrene segments were below previously issued guidance due to several factors. Generally higher raw materials costs, a slowdown in the automotive industry and the continuation of a weaker tire market negatively impacted the Performance Plastics and Synthetic Rubber segments, leading to lower than expected sales volume and margin compression in each of these segments.
In addition, operating results in Latex Binders, Synthetic Rubber, and Performance Plastics for the third quarter were negatively impacted by a reduction in customer demand driven by the continued uncertainty of global trade dynamics as well as from customer destocking in anticipation of lower feedstock prices in the future.
The company's expectation going forward is that weakness in the automotive and tire markets, as well as the slowdown in China will impact future results to the extent trade uncertainty persists.
Higher input costs, weakness in autos, a slowdown in China and impacts from trade uncertainty are headwinds that have the potential to become a recurring theme in the market going forward.
Trinseo is the second materials company to warn about third quarter results in as many days. Paint and coating giant PPG (PPG) guided third quarter and fourth quarter results below consensus on Tuesday afternoon, citing significant raw material and elevating logistics cost inflation, soft demand from China and weakness in the auto sector.
These headwinds seem to give some credence to the recent sell off in cyclical sectors such as Materials as we enter third quarter earnings season.
Trinseo has a $2.7 billion valuation and trades at ~7x earnings.