Materials giant A. Schulman Inc. warned Aug. 11 that its net income from 2016 will be lower than previously expected due to “deteriorating market conditions facing the industry” in the United States and Europe.
The company lowered its full-year 2016 adjusted net income guidance range to $1.90 to $1.95 per diluted share from its previous guidance of $2.40 to $2.45 per diluted share. It also reduced its forecast for adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to $225 million to $230 million from $245 million to $250 million.
The announcement sent Schulman's per-share stock price tumbling almost 27 percent to $21.89 on Aug. 11. It had started the day just under $30.
“At the beginning of the quarter, our key end-markets in the U.S. and Europe did not present notable headwinds. However, as the quarter progressed, we saw double-digit volume contraction,” said Bernard Rzepka, president and CEO of Schulman, in a statement.
He said the softness in the business then “continued into August,” particularly for the company's Masterbatch Solutions, Engineered Plastics and Engineered Composites product lines.
“Similarly, the continued volatility in our major raw materials due to lower oil prices has created further caution in our customers and a reduction in orders,” Rzepka said. “Unfortunately, the weak demand environment has overshadowed the positive impact of several cost reduction and synergy programs that we have been executing throughout the year.”
He noted, though, that Schulman's cash flow “remains strong, and we continue to make good strides in paying down our debt.”
In July, Rzepka said, Schulman paid down an additional $18.2 million of debt. Gross debt was $967 million at the end of July, down 14 percent from the peak of $1.1 billion in June 2015.
“This progress, combined with over $300 million of available credit under our current credit facility, positions us well to withstand this challenging economic climate as we enter our next fiscal year,” he said.
Schulman expects to release fiscal 2016 fourth-quarter and full-year results as well as fiscal 2017 earnings guidance after the market closes on Oct. 26.
The reduced earnings expectation continues a tumultuous period for Schulman, which ranks as a leading compounder and concentrate maker in North America and Europe, as well as one of Europe's largest resin distributors.
On June 15, Schulman filed a lawsuit against the previous owners of Citadel Plastics, accusing them of falsifying results before selling the company to Schulman in early 2015 for $800 million. Schulman executives have defended the Citadel deal in spite of the lawsuit.
Schulman filed the suit in Chancery Court in Wilmington, Del. Schulman is seeking unspecified damages from former Citadel owners including Huntsman Gay Capital Partners, as well as from several former Citadel executives, including Michael Huff.
Most of Schulman's accusations center around Lucent Polymers, an Evansville, Ind.-based compounding firm that Lucent had acquired in late 2013. Schulman acquired Citadel in early 2015 in what was the biggest deal in Schulman's 88-year history.
In the filing, Schulman officials said that the firm “never would have purchased, much less paid $800 million for Citadel had it known that [Lucent] was engaging in fraudulent business practices that…substantially reduced [Citadel's] profitability and growth prospects.”
Buying Citadel added $550 million in annual sales and 21 production plants to Schulman's portfolio. Of that sales total, 55 percent came from engineering plastics — mainly compounding — with the rest coming from thermoset composites.
Plastics News senior reporter Frank Esposito contributed to this report.