So What if Kronos Fell Short on 1 Count

Almost everything about Kronos Worldwide's (NYS: KRO) fourth-quarter numbers was good. The chemical maker's revenue rose 17% from the year-ago period, its profits beat Street estimates, and it operated at just about 100% capacity. But its sales volumes fell. Should you be worried?

I'm not. Here's why.

Kronos' sales volumes were lower because of de-stocking by customers -- something that was more of an industrywide trend than a company-specific issue. Huntsman's (NYS: HUN) fourth-quarter sales from its pigments division fell because of this reason, and so did DuPont's (NYS: DD) .

But as I mentioned earlier, Kronos' plants operated at full capacity, leaving the company with higher inventory in hand. I actually see a positive side to this, too, with three factors to support my view.

First, the inventory of titanium dioxide, or TiO2, was produced at a cost probably much lower than what Kronos will incur going forward. Input costs have been soaring lately and are expected to go further north this year, making that inventory increasingly valuable.

Second, the demand for TiO2 is likely to remain robust. Although sales volumes fell in the quarter, most players are bullish on the pigment market. In fact, the world's largest TiO2 producer, DuPont, is expecting the pigment market to strengthen by midyear, and 2012 sales volumes to be greater than 2011's.

And third, none of the TiO2 players is willing to take a breather on price increases. All three -- Kronos, DuPont, and Huntsman -- recently announced that they will further increase TiO2 prices from April 1 onward. Most have hinted they'll continue to do so throughout the year.

Combine these three factors, and what do we get? As demand for TiO2 picks up, Kronos should actually be able to sell the low-cost stock of TiO2 at higher prices.

The Foolish bottom line
The market for TiO2 is likely to remain strong, and Kronos shouldn't have a problem selling off its chemicals. Things look fine with the company on most fronts, and I feel it should continue to do well in the near term. I am also tempted by the good dividend Kronos pays (it currently yields 2.4%).

I'll soon take up a detailed analysis of Kronos' performance and growth plans. If you don't want to miss it, click here to add Kronos to your stock watchlist, our free and personalized stock-tracking service.

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At the time this article was published Neha Chamariadoes not own shares of any of the companies mentioned in this article.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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