Wells Fargo Gives Color On Kronos Worldwide Following Strong Earnings

Kronos Worldwide KRO reported Q4 2010 earnings per share of $.66, up 526% yr/yr, ahead of the $0.61 consensus estimate. Q4 2010 revenue was up 24%
yr/yr on stronger sales volume, increased pricing, and unfavorable currency. Despite very strong pricing power over the past 18 months, profit margins do not currently justify capacity expansion, and the global TiO2 supply is expected to remain in a shortage.

To date, KRO has announced incremental price increases through Q2 2011 of approximately $0.24/lb, which, implies 28% and 40% yr/yr pricing growth in Q1 2011 and Q2 2011, respectively. On this pricing power, Wells Fargo is increasing our 2011E EPS to $5.03 and introducing our 2012E of $8.10, and raising the valuation range to $63-66.

KRO ended 2010 with a net debt to capital ratio of 18%, and grew free cash flow 18% yr/yr. Assuming no major capital movement, Wells Fargo forecasts a net cash position by the end of 2011.

Wells Fargo has an Outperform rating on KRO

KRO is trading higher at $53.25