COLUMBUS, OH - Hexion Inc. has released results for the first quarter ended March 31, 2017. The company reported a decrease in net sales of $42 million, or 4%.
“Demand for our specialty products remained strong with overall Hexion sales and volumes gains of 6% and 8%, respectively, compared to the prior year and adjusted for our recent divestitures,” said Craig O. Morrison, Chairman, President and CEO. “While the lead lag impact of higher raw materials negatively impacted the first quarter by $5 million, we experienced strong momentum in our Forest Products Resins segment, which was able to partially offset raw material headwinds and softening market conditions in our specialty epoxy business. We expect improvement in our specialty epoxy business in the second half of 2017 as demand increases.”
Morrison added, “We also posted improved year-over-year EBITDA results in our oilfield proppants and base epoxy resins businesses, while our recently-completed formaldehyde plants contributed $4 million in EBITDA in the first quarter of 2017. In addition, we continue to execute our strategic growth program, such as our recently announced new European Technology Center focused on the ongoing development of innovative auto composite applications. Finally, while our strong volumes and seasonal net working capital build impacted our liquidity at quarter-end, in aggregate, we expect to be free cash flow positive for the remainder of the year.”
Net sales for the quarter were $870 million, a decrease of 4% compared with $909 million in the prior year period. The decline in reported net sales was primarily driven by the impact of recent divestitures. Net sales increased 6% when adjusting for recent divestitures reflecting broad-based volume gains throughout the product portfolio.
Segment EBITDA for the quarter was $95 million, a decrease of 22% compared with $122 million in the prior year period. Segment EBITDA in the first quarter of 2017 decreased by $12 million, or 11%, when adjusted for divestitures. First quarter 2017 results were driven by growth in the company’s Versatic™ Acids and Derivatives and global forest product businesses, as well as improvements in base epoxy resins and oilfield proppants, which was offset by a year-over-year decline in the specialty epoxy resins business driven by temporary destocking in the company’s Asian-based wind energy business and the negative impact from raw material inflation. In addition, the company benefited from insurance proceeds in the prior year period related to its Versatic Acids and Derivatives business that did not reoccur in the first quarter of 2017.
In mid-2016, the company completed the closure of its Norco, Louisiana, facility and began sourcing epichlorohydrin under long-term external supply agreements. In total, the company expects to achieve $20 million of annualized savings from this strategic initiative and had realized $18 million in savings as of March 31, 2017.
In addition to the Norco closure, the company has $13 million of incremental, in-process cost savings related to manufacturing cost reductions and $5 million in selling, general and administrative cost savings. As of March 31, 2017, Hexion had $20 million of total in-process cost savings, the majority of which it expects to be achieved in 2017.
On May 9, the company announced that it is proposing to issue $75 million aggregate principal amount of new 10.375% First-Priority Senior Secured Notes in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended. The company previously issued $485 million aggregate principal amount of 10.375% First-Priority Senior Secured Notes due 2022 and the notes will constitute a single class of securities with such previously issued notes.
The company intends to use the net proceeds from the offering of the notes for general corporate purposes. The proposed offering of the notes is subject to market and other conditions, and may not occur as described or at all.