“We had a challenging first quarter, with our results coming in at levels similar to fourth quarter 2018, reflecting suboptimal market conditions for us and the chemical industry as a whole," CEO Corning Painter said. "Despite the challenges, destocking appears to have slowed and we have successfully progressed key marketing initiatives, allowing us to gain more stable footing heading into the balance of the year.
“We remain keenly focused on our path going forward," Painter continued. "In our Specialty business, we anticipate modest volume recovery to be sustained, which will simultaneously improve our mix. Our view is supported by broader indications of a general recovery in China, in part driven by government stimulus programs and more constructive customer sentiment. For our Rubber Black segment, we are making good progress in the China market. We expect the modest volume recovery we have recently seen across both businesses, combined with cost, pricing, and other key initiatives, will drive improved quarterly performance on a go forward basis.”
Total volumes decreased by 8.2 percent, or 23.3 kmt, to 262.8 kmt compared to prior year. Adjusted for the plant consolidation in South Korea volumes decreased by four percent versus prior year, reflecting weaker demand in both segments largely due to a slowdown in demand in China and some rubber grades in Europe. Weakened demand especially in the early part of the quarter, resulted in significant destocking of customer inventories in China as well as other regions, especially of higher valued grades. Volumes versus the fourth quarter of 2018, increased by 2.6 percent.
Revenue decreased by $22 million, or 5.4 percent, to $384.7 million versus prior year primarily as a result of the volume decrease and foreign exchange translation effects, which were partially offset by price increase particularly in the Rubber segment and the pass-through of higher feedstock costs. Revenue was essentially unchanged versus the fourth quarter of 2018.
Contribution Margin decreased by $13.9 million, or 9.2 percent, to $136.3 million, reflecting the decrease in volumes, foreign exchange rate translation effects, negative feedstock differentials and mix significantly offset by base price increases mainly in Rubber. Sequentially versus the fourth quarter of 2018 contribution margin rose by 5.3 percent reflecting the increase in sequential volumes as well as increased prices particularly for Rubber.
Income from operations decreased by $10.6 million, or 23.5 percent, to $34.7 million, essentially in line with Contribution Margin, offset by lower fixed costs in part due to foreign exchange translation effects.
Adjusted EBITDA decreased by $11.4 million, or 15 percent to $64.6 million, reflecting the decrease in Contribution Margin partially offset by lower selling, general and administrative expenses. On a sequential basis adjusted EBITDA remained essentially at the level of the fourth quarter of 2018.
Net Income decreased by $7.8 million to $19 million.
Volumes for the Specialty Carbon Black business decreased by 7.4 percent in the first quarter of 2019 from 69.1 kmt in the first quarter of 2018, mainly as a result of a slump in market demand in large part in China during the first part of the quarter. Volumes were up by 5.3 percent however against the fourth quarter of 2018, particularly in Europe.
Revenues decreased by $10.1 million, or 7.1 percent to $131.6 million in the first quarter of 2019, mainly due to lower volumes, negative foreign exchange rate translation effects, as well as negative mix, impacts partially offset by base price increases. Revenue sequentially against the fourth quarter of 2018 increased by 3.7 percent.
Gross Profit decreased by $12.6 million, or 23.3 percent to $41.4 million due to the lower sales volumes and foreign exchange rate translation effects and negative product mix partially offset by base price increases. Gross profit was up 5.8% against the fourth quarter of 2018 reflecting the pick-up in volumes and base prices.
Adjusted EBITDA decreased by $10.9 million, or 27.1 percent, to $29.4 million reflecting the decrease in Gross Profit and slightly lower fixed costs year over year. Accordingly, the Adjusted EBITDA margin decreased 620 basis points to 22.3 percent. Compared to the fourth quarter of 2018, Adjusted EBITDA was essentially unchanged.
Rubber Blacks volumes declined by 18.2 kmt, or 8.4 percent, respectively 2.8 percent, allowing for the consolidation of our plants in South Korea volumes. This decline was mainly attributable to reduced mechanical rubber goods volumes in China and to a lesser extent in Europe. On a sequential basis, volumes increased by 1.7 percent versus the fourth quarter of 2018.
Revenue decreased by $11.9 million, or 4.5 percent to $253.1 million primarily due to lower volumes and negative foreign exchange rate translation effects partially offset by the pass-through of higher feedstock costs to customers and base price increases. Sequentially revenue declined by 2.3 percent, mostly as a result of the pass-through of lower feedstock prices, which offset the increase in volumes and base prices.
Gross profit decreased by $1.8 million, or 3.2 percent to $56.6 million as a result of lower volumes in part due to the plant consolidation in South Korea and foreign exchange translation effects partially offset by base price increases and efficiency gains. Sequentially gross profit remained essentially unchanged versus the fourth quarter of 2018 with base price increases in 2019 being offset by increased negative feedstock differentials.
Rubber Adjusted EBITDA decreased by $0.5 million, or 1.4 percent, to $35.2 million reflecting the development of gross profit, partially offset by lower selling expenses. Adjusted EBITDA margin was 13.9 percent in the first quarter of 2019 compared to 13.5% in the first quarter of 2018. Sequentially, Adjusted EBITDA was down by 0.7% versus the fourth quarter of 2018.
“Despite a challenging start to the year, we saw some recovery towards the end of Q1 in base volumes and premium grades as well as more confident customer sentiment,” Painter said. “At the same time, we have launched a profit improvement program and continue to work on pricing excellence; a key initiative that we remain committed to executing. We anticipate that business demand will improve from Q1 levels over the course of the year as we have also started to see indications of improvement in China. Consistent with our previous expectations and further supported by recent positive trends, we are reiterating our outlook for full year Adjusted EBITDA for 2019 to be in the range of $280 million to $300 million. This outlook is based on the assumptions that oil prices, exchange rates and feedstock impacts will not materially change from average levels seen in the first quarter of 2019.