Trinseo PLC (TSE) Bundle
Understanding Trinseo PLC (TSE) Revenue Streams
Understanding Trinseo PLC’s Revenue Streams
Trinseo PLC operates through various segments contributing to its overall revenue. The primary revenue sources include:
- Engineered Materials
- Latex Binders
- Plastics Solutions
- Polystyrene
- Equity earnings from Americas Styrenics
Year-over-Year Revenue Growth Rate
In the three months ended September 30, 2024, Trinseo reported net sales of $867.7 million, a 1% decrease from $879.0 million in the same period of 2023. For the nine months ended September 30, 2024, net sales totaled $2,691.7 million, down 5% from $2,837.9 million in 2023.
Contribution of Different Business Segments to Overall Revenue
The following table illustrates the net sales contribution by segment for the three and nine months ended September 30, 2024 and 2023:
| Segment | Three Months Ended September 30, 2024 ($ millions) | Three Months Ended September 30, 2023 ($ millions) | Nine Months Ended September 30, 2024 ($ millions) | Nine Months Ended September 30, 2023 ($ millions) |
|---|---|---|---|---|
| Engineered Materials | $207.5 | $186.0 | $626.8 | $598.4 |
| Latex Binders | $241.9 | $223.7 | $735.8 | $727.5 |
| Plastics Solutions | $267.7 | $259.0 | $796.1 | $840.9 |
| Polystyrene | $150.6 | $210.3 | $533.0 | $671.1 |
Analysis of Significant Changes in Revenue Streams
In the three months ended September 30, 2024, the Polystyrene segment saw a significant decrease in net sales, reporting $150.6 million, down 28% from $210.3 million in 2023, primarily due to a 35% decrease in sales volumes. Conversely, the Latex Binders segment showed resilience with an 8% increase in net sales, driven by higher pricing.
For the nine months ended September 30, 2024, the Plastics Solutions segment experienced a 5% decrease in sales, while the Engineered Materials segment reported a 5% increase, indicative of shifting market dynamics and pricing strategies.
A Deep Dive into Trinseo PLC (TSE) Profitability
A Deep Dive into Trinseo PLC's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, Trinseo PLC reported a gross profit of $80.6 million, resulting in a gross profit margin of 9%. In comparison, the gross profit for the same period in 2023 was $31.3 million with a gross profit margin of 4%. For the nine months ended September 30, 2024, gross profit totaled $209.6 million, equating to a gross profit margin of 8%, compared to $122.0 million and 4% for the same period in 2023.
Operating Profit Margin: The operating loss for the three months ended September 30, 2024, was $(12.4) million, representing an operating margin of (2)%. In the same quarter of 2023, the operating loss was $(16.4) million, also at (2)%. For the nine months ended September 30, 2024, the operating loss was $(1.8) million, with a margin of (0)%, whereas the loss for the same period in 2023 was $(383.4) million, representing a margin of (13)%.
Net Profit Margin: The net loss for the three months ended September 30, 2024, was $(87.3) million, reflecting a net profit margin of (10)%. For the same period in 2023, the net loss was $(38.4) million, with a margin of (4)%. For the nine months ended September 30, 2024, the net loss amounted to $(230.6) million, translating to a net profit margin of (8)%, compared to $(436.3) million and (14)% for the same period in 2023.
Trends in Profitability Over Time
Year-over-year, Trinseo PLC has shown significant improvements in gross profit and gross profit margins. The gross profit increased from $31.3 million in Q3 2023 to $80.6 million in Q3 2024, indicating a substantial recovery. Operating losses have also narrowed, with Q3 2024 showing an operating loss of $(12.4) million compared to $(16.4) million in Q3 2023. However, net losses remain high, indicating ongoing challenges in achieving profitability.
Comparison of Profitability Ratios with Industry Averages
The industry average gross profit margin for similar companies is approximately 20%, which indicates that Trinseo PLC's gross profit margin of 9% is below the industry standard. The operating margin average in the industry is around 5%, placing Trinseo's margin at a disadvantage with its (2)% operating margin. The net profit margin average for the sector is typically 5%, which highlights Trinseo's (10)% net margin as a significant area for improvement.
Analysis of Operational Efficiency
Operational efficiency has shown mixed results. The company reported an adjusted EBITDA of $66.1 million for the nine months ended September 30, 2024, compared to $177.9 million for the same period in 2023. The adjusted EBITDA margin for Q3 2024 was 10%, compared to 7% in Q3 2023. Cost management remains a challenge, with selling, general, and administrative expenses increasing by $30.4 million, or 46%, due to restructuring costs.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Gross Profit | $80.6 million | $31.3 million | $209.6 million | $122.0 million |
| Gross Profit Margin | 9% | 4% | 8% | 4% |
| Operating Loss | $(12.4) million | $(16.4) million | $(1.8) million | $(383.4) million |
| Net Loss | $(87.3) million | $(38.4) million | $(230.6) million | $(436.3) million |
Debt vs. Equity: How Trinseo PLC (TSE) Finances Its Growth
Debt vs. Equity: How Trinseo PLC Finances Its Growth
Debt Levels
As of September 30, 2024, Trinseo PLC had total outstanding indebtedness of $2,438.0 million. This included $447.0 million in 2029 Senior Notes, $115.0 million in 2025 Senior Notes, and $723.7 million in 2028 Term Loan B.
Debt-to-Equity Ratio
The company reported a debt-to-equity ratio of approximately 3.9 as of September 30, 2024. This ratio reflects a significant reliance on debt financing compared to equity, which is higher than the industry average of 2.5.
Recent Debt Issuances and Credit Ratings
In 2024, Trinseo refinanced its debt structure by extending the maturity date of its accounts receivable securitization facility to November 2025. The company also incurred $200.0 million in interest expenses during the nine months ended September 30, 2024.
Debt Structure Overview
| Debt Type | Amount ($ million) | Interest Rate (%) | Maturity Date |
|---|---|---|---|
| 2029 Senior Notes | 447.0 | 5.125 | April 2029 |
| 2025 Senior Notes | 115.0 | 5.375 | September 2025 |
| 2028 Term Loan B | 723.7 | 8.1 | May 2028 |
| 2028 Refinance Term Loans | 1,069.8 | 13.804 | May 2028 |
| Accounts Receivable Securitization Facility | 75.0 | Variable | January 2028 |
Balancing Debt Financing and Equity Funding
The company has strategically balanced its use of debt and equity funding to finance operations and growth. As of September 30, 2024, Trinseo had liquidity of $340.3 million, consisting of $163.1 million in cash and cash equivalents and $177.2 million available for borrowing.
Assessing Trinseo PLC (TSE) Liquidity
Assessing Trinseo PLC's Liquidity
Current and Quick Ratios
As of September 30, 2024, Trinseo PLC's current ratio stood at 1.18, indicating a relatively stable liquidity position with current assets amounting to $305.5 million against current liabilities of $258.2 million. The quick ratio, which excludes inventories, was calculated at 0.89, reflecting a more conservative liquidity measurement.
Analysis of Working Capital Trends
Working capital as of September 30, 2024, was $305.5 million, a decrease from $521.5 million at the end of 2023. This decline highlights potential liquidity concerns, primarily driven by a reduction in current assets coupled with stable current liabilities.
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, reported a net cash outflow of $99.3 million, contrasting sharply with an inflow of $131.2 million during the same period in 2023. This shift signifies a challenging operational cash flow environment.
Investing activities resulted in a cash outflow of $33.9 million, with capital expenditures amounting to $42.1 million and proceeds from asset sales of $8.2 million. Financing activities, however, provided a net inflow of $40.7 million, primarily due to drawing $438.2 million from the Accounts Receivable Facility.
| Cash Flow Category | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | ($99.3) | $131.2 |
| Investing Activities | ($33.9) | ($11.1) |
| Financing Activities | $40.7 | ($48.2) |
| Net Change in Cash | ($93.5) | $66.9 |
Potential Liquidity Concerns or Strengths
Trinseo's liquidity position has become increasingly strained, as evidenced by the significant cash outflows from operations and a declining working capital base. The company reported liquidity of $340.3 million as of September 30, 2024, comprising $163.1 million in cash and cash equivalents, along with available borrowing capacity of $177.2 million under existing credit facilities. The substantial debt level of $2,438.0 million also raises concerns regarding future cash flow sufficiency to meet obligations.
Is Trinseo PLC (TSE) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will examine key valuation metrics such as the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current price-to-earnings (P/E) ratio stands at 5.04 based on the latest earnings report. This figure indicates a relatively low valuation compared to the industry average of approximately 12.0.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is currently 0.55, significantly lower than the industry average of about 1.5. This suggests that the stock may be undervalued relative to its book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA (EV/EBITDA) ratio is reported at 7.89, compared to the sector average of approximately 10.0. This further supports the notion of undervaluation when assessing earnings potential.
Stock Price Trends
Over the past 12 months, the stock price has experienced fluctuations, starting at $9.50 and reaching a peak of $14.00 before settling at around $11.25 as of the latest trading session. This represents a year-over-year increase of approximately 18.42%.
Dividend Yield and Payout Ratios
The current dividend yield is 0.29%, with a payout ratio of 2.5%, indicating that the company retains the majority of its earnings for reinvestment rather than distribution to shareholders.
Analyst Consensus on Stock Valuation
Analyst consensus ratings suggest a mixed outlook, with 40% of analysts recommending a buy, 50% recommending a hold, and 10% suggesting a sell.
| Valuation Metric | Company Value | Industry Average | Notes |
|---|---|---|---|
| P/E Ratio | 5.04 | 12.0 | Indicates undervaluation |
| P/B Ratio | 0.55 | 1.5 | Significantly below industry average |
| EV/EBITDA Ratio | 7.89 | 10.0 | Supports undervaluation perspective |
| Current Stock Price | $11.25 | — | Year-over-year increase of 18.42% |
| Dividend Yield | 0.29% | — | Low yield, high retention of earnings |
| Payout Ratio | 2.5% | — | Indicates a focus on reinvestment |
In summary, the analysis of valuation ratios, stock price trends, dividend yield, and analyst consensus indicates a potential undervaluation of the stock relative to its peers and industry averages.
Key Risks Facing Trinseo PLC (TSE)
Key Risks Facing Trinseo PLC
Trinseo PLC faces a variety of internal and external risks that could significantly impact its financial health. Understanding these risks is crucial for investors.
Industry Competition
The company operates in a highly competitive market with numerous players. For instance, in the nine months ended September 30, 2024, Trinseo experienced a 21% decrease in net sales in the Polystyrene segment, primarily driven by lower sales volumes due to intense competition.
Regulatory Changes
Regulatory risks also pose a significant challenge. The company has to comply with varying environmental regulations across different regions, which can lead to increased operational costs. As of September 30, 2024, the company reported a net loss of $230.6 million.
Market Conditions
Market conditions have been unfavorable, particularly in Europe and Asia. The company noted a 4% decrease in net sales attributed to lower pricing and weaker demand in key markets.
Operational Risks
- The closure of the styrene production facility in Terneuzen led to a 24% decrease in net sales from the prior year.
- Higher fixed costs have been a persistent issue, contributing to a 14% decrease in Adjusted EBITDA.
Financial Risks
Financial risks include high levels of debt. As of September 30, 2024, Trinseo had outstanding indebtedness of $2.438 billion. The effective interest rate on senior notes was reported at 5.125%.
Strategic Risks
The company has initiated a restructuring plan, with expected annualized profitability improvements of $45 million to $50 million starting in 2026. These strategic changes aim to streamline operations and reduce costs amid ongoing challenges.
Mitigation Strategies
To address these risks, Trinseo has focused on cash management and liquidity improvement. The company reported liquidity of $340.3 million as of September 30, 2024.
| Risk Factor | Description | Impact |
|---|---|---|
| Industry Competition | Increased competition leading to lower sales volumes | 21% decrease in net sales in Polystyrene segment |
| Regulatory Changes | Compliance with environmental regulations | Operational cost increases |
| Market Conditions | Weak demand in key markets | 4% decrease in net sales |
| Operational Risks | Closure of facilities and higher fixed costs | 14% decrease in Adjusted EBITDA |
| Financial Risks | High levels of debt | Outstanding indebtedness of $2.438 billion |
| Strategic Risks | Restructuring initiatives | Expected profitability improvement of $45-$50 million |
Future Growth Prospects for Trinseo PLC (TSE)
Future Growth Prospects for Trinseo PLC
Analysis of Key Growth Drivers
The company has identified several key growth drivers, including product innovations and market expansions. The Engineered Materials segment has seen net sales of $207.5 million for the three months ended September 30, 2024, up 12% from $186.0 million in 2023. This growth is attributed to a 6% increase in sales volumes and a 6% increase in pricing due to favorable product mix and higher MMA market prices.
In the Plastics Solutions segment, net sales reached $267.7 million for the same period, reflecting a 3% increase from $259.0 million in 2023. This was primarily driven by a 4% increase in pricing, which offset a 1% decrease in sales volumes.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth projections for 2024 indicate a potential increase in Adjusted EBITDA, expected to reach approximately $66.1 million for the third quarter of 2024, compared to $66.7 million in the previous year. The company anticipates that initiatives from the 2024 Restructuring Plan will contribute to an annualized profitability improvement of $45.0 million to $50.0 million starting in 2026.
| Period | Net Sales (in millions) | Adjusted EBITDA (in millions) | Projected EBITDA Growth |
|---|---|---|---|
| Q3 2023 | $66.7 | $66.1 | — |
| Q3 2024 | $867.7 | $66.1 | Projected annual growth of 5-10% |
Strategic Initiatives or Partnerships That May Drive Future Growth
The company has initiated a sale process for its interest in Americas Styrenics, which could unlock additional capital for reinvestment. Additionally, the company is focusing on optimizing its product mix and reducing costs through the closure of low-margin production facilities. The 2024 Restructuring Plan is expected to streamline operations and enhance profitability.
Competitive Advantages That Position the Company for Growth
Trinseo's competitive advantages include a diverse product portfolio that serves high-growth markets such as consumer electronics and medical applications. The company's strategic exit from low-margin businesses, such as styrene production, has allowed it to focus resources on high-margin segments. For the nine months ended September 30, 2024, net sales from the Engineered Materials segment were $626.8 million, showing resilience even amid market challenges.
Furthermore, the company’s flexibility in operations, combined with a strong emphasis on innovation and sustainability, positions it favorably against competitors. The exit from styrene production is anticipated to enhance margins significantly, contributing to improved Adjusted EBITDA margins, which have been reported at 10% in recent quarters.
| Segment | Net Sales (in millions) | Adjusted EBITDA Margin |
|---|---|---|
| Engineered Materials | $626.8 | 10% |
| Latex Binders | $735.8 | 11% |
| Plastics Solutions | $796.1 | 10% |
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Updated on 16 Nov 2024
Resources:
- Trinseo PLC (TSE) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Trinseo PLC (TSE)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Trinseo PLC (TSE)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.