10-K: NL Industries Reports Strong 2024 Earnings Driven by Kronos and Environmental Settlement

NL Industries, Inc. announces a significant increase in net income for 2024, primarily due to improved performance at Kronos Worldwide and a favorable environmental remediation settlement.

Summary

• NL Industries, Inc. reported net income attributable to NL stockholders of $67.2 million, or $1.38 per share, for 2024, a substantial increase compared to a net loss of $2.3 million, or $0.05 per share, in 2023.
• The improved earnings are mainly attributed to a turnaround at Kronos Worldwide, which posted equity in earnings of $26.4 million in 2024 compared to a loss of $15.0 million in 2023.
• A significant $31.4 million income was recognized in 2024 related to the settlement of a liability for an environmental remediation site.
• CompX International Inc., a majority-owned subsidiary, experienced a decrease in segment profit from $25.4 million in 2023 to $17.0 million in 2024.
• The company expects net income attributable to NL stockholders in 2025 to be lower than 2024, primarily due to the absence of the one-time income from the environmental remediation settlement, partially offset by higher expected CompX segment profit.
• The company's 31% ownership of Kronos Worldwide, Inc. is accounted for using the equity method.
• Kronos net sales in 2024 increased 13%, or $220.6 million, compared to 2023 primarily due to the effects of a 20% increase in sales volumes due to improved overall demand across all major markets partially offset by a 5% decrease in average TiO 2 selling prices.
• CompX net sales decreased $15.4 million in 2024 compared to 2023 due to lower Marine Components sales to the towboat market and lower Security Products sales to the government security market.

Sentiment

Score: 7

Explanation: The document presents a positive financial performance for 2024, driven by specific events and improved subsidiary performance. However, the cautious outlook for 2025 and the presence of various risk factors temper the overall sentiment.

Positives

• Significant increase in net income attributable to NL stockholders.
• Turnaround in performance at Kronos Worldwide.
• Favorable settlement of an environmental remediation liability.
• Expectation of higher CompX segment profit in 2025.
• Kronos net sales increased 13% in 2024, driven by a 20% increase in sales volumes.

Negatives

• Decrease in CompX segment profit in 2024.
• Expected decrease in net income in 2025 due to the absence of the environmental settlement income.
• CompX net sales decreased $15.4 million in 2024 due to lower sales in the Marine Components and Security Products segments.

Risks

• Demand for, and prices of, certain of Kronos products are influenced by changing market conditions for its products, which may result in reduced earnings or in operating losses.
• The TiO 2 industry is concentrated and highly competitive and Kronos faces price pressures in the markets in which it operates, which may result in reduced earnings or operating losses.
• CompX operates in mature and highly competitive markets, resulting in pricing pressure and the need to continuously reduce costs.
• Higher costs or unavailability of CompXs raw materials could negatively impact our financial results.
• Higher costs or limited availability of Kronos raw materials may reduce its earnings and decrease its liquidity.
• Kronos leverage may impair our financial condition.
• Changes in currency exchange rates and interest rates can adversely affect Kronos net sales, profits and cash flows.
• We could incur significant costs related to legal and environmental matters.
• If some or all of Kronos or CompXs intellectual property were to be declared invalid, held to be unenforceable or copied by competitors, or some or all of Kronos or CompXs confidential information become known to competitors, or if Kronos or CompXs competitors were to develop similar or superior intellectual property or technology, their ability to compete could be adversely impacted.
• Environmental, health and safety laws and regulations, particularly as they relate to Kronos, may result in increased regulatory scrutiny which could decrease demand for Kronos products, increase Kronos manufacturing and compliance costs or obligations and result in unanticipated losses which could negatively impact its financial results or limit its ability to operate its business.
• Global climate change laws and regulations could negatively impact our financial results or limit Kronos and CompXs ability to operate their businesses.
• Kronos operating as a global business presents risks associated with global and regional economic, political, and regulatory environments.
• Kronos is experiencing increasing competition from China.
• Technology failures or cybersecurity breaches could have a material adverse effect on our operations.
• Physical impacts of climate change could have a material adverse effect on Kronos or CompXs costs and operations.

Future Outlook

Excluding any potential effects from changes in the relative value of marketable equity securities, we currently expect our net income attributable to NL stockholders in 2025 to be lower than 2024 primarily due to income related to the settlement of a liability for an environmental remediation site recognized in the fourth quarter of 2024 partially offset by higher expected CompX segment profit.

Industry Context

The announcement reflects the cyclical nature of the TiO2 industry, where demand and pricing are closely tied to global economic conditions. The acquisition of full control of LPC by Kronos is a strategic move to enhance its position in the North American market.

Comparison to Industry Standards

• Kronos estimates it had a 7% share of worldwide TiO2 sales volume in 2024, and believes it is the leading seller of TiO2 in several countries, including Germany.
• Kronos principal competitors are LB Group Co. Ltd, The Chemours Company, Tronox Holdings PLC and Venator Materials PLC.
• The top five TiO 2 producers (i.e. Kronos and its four principal competitors) account for approximately 51% of the worlds production capacity.
• Chemours has approximately one-half of total North American TiO 2 production capacity and is Kronos principal North American competitor.
• LB Group previously announced it plans to add an additional 200,000 tons of chloride capacity which we expect will be added incrementally over the next several years.
• However, several of Kronos competitors have recently closed or announced plans to close facilities or otherwise reduce capacity, including Chemours which closed its Taiwan facility with an estimated 160,000 tons of chloride process capacity in 2023 and Venator which announced plans in 2024 to close its Duisburg, Germany facility with an estimated 50,000 tons of sulfate process capacity.

Legal Proceedings

• NL was served with a third-party complaint in a matter titled Arrioena Beal v. Hattie Mitchell, et al. (Circuit Court of Milwaukee County, Wisconsin, Case No. 21-cv-3276).
• In January 2025, the Court of Appeals reversed the trial courts grant of partial summary judgment and returned the matter to the trial court in Atlantic Richfield, Co. v. NL Industries, Inc., (United States District Court for the District of Colorado, Case 1:20-cv-00234).
• In October 2024, we were served in Brooklyn Union Gas Co. v. Consolidated Edison Co. of New York, et al. (United States District Court for the Eastern District of New York, Case No. 1:24-cv-06993).
• In May 2024, we were served in Philip Palmeri v. NL Industries, Inc. (Supreme Court of Niagara County, New York, Case No. E183238).
• On February 10, 2025, the United States District Court for the District of New Jersey entered an order approving a consent decree relating to the RBS Site in Middlesex County, New Jersey.

Related Party Transactions

• Valhi has agreed to loan us up to $50 million on a revolving basis.
• We are party to a tax sharing agreement with Contran and Valhi providing for the allocation of tax liabilities and tax payments.
• Under the terms of various intercorporate services agreements (ISAs) we enter into with Contran, employees of Contran will provide certain management, tax planning, financial and administrative services to the Company on a fee basis.
• Contran and certain of its subsidiaries and affiliates, including us, purchase certain of their insurance policies and risk management services as a group, with the costs of the jointly-owned policies and services being apportioned among the participating companies.
• Tall Pines Insurance Company, a subsidiary of Valhi, underwrites certain insurance policies for Contran and certain of its subsidiaries and affiliates, including us.
• Contran and certain of its subsidiaries, including us, participate in a combined information technology data services program that Contran provides for primary data processing and failover.
• Under the terms of a sublease agreement between Contran and Kronos, Kronos leases certain office space from Contran.

Stakeholder Impact

• The improved financial performance benefits shareholders through increased net income and potential for future dividends.
• Employees at Kronos and CompX may benefit from improved job security and potential for bonuses due to better financial results.
• Customers of Kronos and CompX may see improved product offerings and service due to increased investment in these businesses.
• Suppliers may benefit from increased orders due to higher production volumes at Kronos and CompX.

Next Steps

• CompX expects Security Products net sales in 2025 to improve modestly over 2024, and it expects gross margin and reporting unit profit percentages in 2025 to be slightly above 2024 due to pricing improvements on the Security Products product mix.
• CompX expects Marine Components net sales to increase in 2025 due to higher expected sales to the government and industrial markets.
• Kronos expects demand to improve in 2025, particularly in Europe where the European Commission enacted duties on Chinese imports of TiO2 in mid-2024; however, it expects overall demand will remain below historical levels due to continued global economic uncertainty caused, in part, by the potential implementation of tariffs by the U.S. and other countries.
• Kronos is focused on cost reduction initiatives designed to improve its long-term cost structure.
• Kronos expects raw material and other input costs will continue to moderate in 2025.
• Kronos expects to report higher operating results for the full year of 2025 as compared to 2024, although it will need to achieve TiO2 selling price increases in order to recognize margins more in-line with historical levels.
• Kronos is in the process of fully integrating the additional LPC production capacity, and it expects the acquisition will have a positive impact on its earnings in 2025, although the potential positive impact will be limited by competitive pressures and by the additional debt service costs associated with the increase in borrowings to complete the transaction.

Key Dates