Valhi, Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Net income attributable to stockholders was $30.2 million ($1.06 per share) for the third quarter of 2026, compared to a net loss of $22.2 million ($0.78 per share) in the same period of 2025.
• For the first nine months of 2026, net income attributable to stockholders was $54.5 million ($1.91 per share), compared to a net loss of $4.4 million ($0.15 per share) in the first nine months of 2025.
• Total net sales were $589.0 million for the third quarter of 2026, up from $503.5 million in the third quarter of 2025.
• Total net sales were $1,755.2 million for the first nine months of 2026, up from $1,582.5 million in the first nine months of 2025.
• Total operating income was $67.4 million for the third quarter of 2026, compared to $8.6 million in the third quarter of 2025.
• Total operating income was $168.0 million for the first nine months of 2026, compared to $94.2 million in the first nine months of 2025.
• Income before income taxes was $48.8 million for the third quarter of 2026, compared to a loss of $7.6 million in the third quarter of 2025.
• Income before income taxes was $110.2 million for the first nine months of 2026, compared to $38.7 million in the first nine months of 2025.
• Interest expense decreased by $1.1 million in the third quarter of 2026 compared to the prior year period, primarily due to lower average debt balances.
• Interest expense increased by $1.3 million in the first nine months of 2026 compared to the prior year period, primarily due to higher average interest rates.
• Corporate expenses were 13% lower in the third quarter of 2026 and 8% lower in the first nine months of 2026 compared to respective prior year periods.

Guidance and Future Outlook:

• The press release contains forward-looking statements regarding future supply and demand, cost savings realization, acquisition integration, market sector dependence, business cyclicality, inventory levels, industry capacity expansion, raw material costs, currency fluctuations, and general economic conditions.
• Management notes that actual future results could differ materially from expectations due to substantial risks and uncertainties, including potential consolidation of competitors or customers, pricing pressure, and changes in government regulations.

Business Segments and Product Lines:

• Chemicals Segment:
  • Net sales were $541.1 million in the third quarter of 2026, an 18% increase from $456.9 million in the third quarter of 2025.
  • Net sales were $1.6 billion in the first nine months of 2026, a 12% increase from $1.4 billion in the first nine months of 2025.
  • Operating income was $60.5 million in the third quarter of 2026, compared to a loss of $15.9 million in the third quarter of 2025.
  • Operating income was $115.4 million in the first nine months of 2026, compared to $35.6 million in the first nine months of 2025.
  • Sales growth was driven by market share gains in European and North American markets, higher average TiO2 selling prices, and favorable currency exchange rates (estimated $39 million impact in the first nine months).
  • Average TiO2 selling prices increased 11% during the first nine months of 2026; Q3 2026 prices were 5% higher than Q3 2025, while the first nine months of 2026 prices were 1% lower than the same period in 2025.
  • Operating income improvements were driven by higher sales volumes, higher production rates reducing unabsorbed fixed costs, lower raw material costs, and cost reduction initiatives, partially offset by higher energy/distribution costs and unfavorable currency impacts (estimated $5 million loss in Q3 and $23 million loss in the first nine months).
• Component Products Segment:
  • Net sales were $44.0 million in the third quarter of 2026, up from $40.0 million in the third quarter of 2025.
  • Net sales were $128.2 million in the first nine months of 2026, up from $120.6 million in the first nine months of 2025.
  • Operating income was $6.4 million in the third quarter of 2026, up from $4.8 million in the third quarter of 2025.
  • Operating income was $22.4 million in the first nine months of 2026, up from $17.0 million in the first nine months of 2025.
  • Growth was driven by higher marine components sales to towboat/industrial markets and higher security products sales to healthcare, tool storage, and transportation markets.
• Real Estate Management and Development Segment:
  • Net sales were $3.9 million in the third quarter of 2026, down from $6.6 million in the third quarter of 2025.
  • Net sales were $18.0 million in the first nine months of 2026, down from $20.8 million in the first nine months of 2025.
  • Operating income was $0.5 million in the third quarter of 2026, down from $19.7 million in the third quarter of 2025.
  • Operating income was $30.2 million in the first nine months of 2026, down from $41.6 million in the first nine months of 2025.
  • Sales declines were due to a slower pace of development activity for previously sold residential parcels.
  • Lower revenue in the first nine months was partially offset by the immediate recognition of $7.3 million from the sale of a final commercial parcel with no development obligations.
  • The segment recognized tax increment infrastructure reimbursements of $16.7 million in the first nine months of 2026, compared to $34.2 million in the same period of 2025.
  • The segment recognized a gain of approximately $5.8 million ($3.0 million net) from the sale of its office building in the second quarter of 2026.

Market and Competitive Landscape:

• The Chemicals Segment gained market share in European and North American markets, influenced by anti-dumping duties and changing supply conditions.
• The company faces competition from Chinese suppliers with less stringent regulatory and environmental compliance requirements.
• The TiO2 industry is subject to cyclicality and potential unexpected capacity expansion.
• Currency exchange rate fluctuations, particularly involving the euro, significantly impacted sales and operating income.

Risks and Challenges:

• Key risks include future supply and demand, ability to realize cost savings, integration of acquisitions, dependence on specific market sectors, and cyclicality of TiO2 operations.
• Risks also encompass customer/producer inventory levels, raw material cost fluctuations (ore, zinc, brass, aluminum, steel, energy), and implementation of tariffs.
• Operational risks include labor disputes, natural disasters, fires, explosions, and technology disruptions (cyber-attacks, software failures).
• Financial risks include the ability to refinance debt, maintain liquidity, and comply with credit facility covenants.
• Regulatory and legal risks include environmental compliance, tax audits (specifically a German tax audit resulting in a $2.0 million expense), pending litigation (lead pigment, environmental matters), and changes in government laws.
• The company faces risks related to the ultimate resolution of pending litigation and potential consolidation of competitors or customers.

Management Commentary and Tone:

• Management attributes the turnaround in net income primarily to higher operating income from the Chemicals Segment.
• The Chemicals Segment successfully implemented price increases and surcharges to offset rising operating costs, including energy and distribution.
• The Real Estate segment notes that development pace is dictated by city permits, environmental approvals, and labor/material availability.
• The press release includes a standard disclaimer regarding forward-looking statements and the inability to assure their correctness.

Other Key Points:

• Net income for the third quarter and first nine months of 2026 includes a non-cash deferred income tax benefit of $12.1 million ($0.28 per share) related to proposed currency regulations under §987 issued in August 2026.
• Net income for the first nine months of 2026 includes a $2.0 million ($0.04 per share) income tax expense to recognize an uncertain tax position related to a German tax audit.
• Net loss for the third quarter and first nine months of 2025 included a non-cash deferred income tax expense of $19.3 million ($0.45 per share) to reduce a German deferred tax asset due to legislation enacted in Germany.
• Income (loss) before taxes in 2025 included a non-cash gain of $4.6 million ($0.08 per share) associated with the remeasurement of an earn-out liability related to the 2024 acquisition of the remaining ownership interest in Louisiana Pigment Company, L.P.
• The Chemicals Segment's net sales growth in the first nine months of 2026 included an estimated $39 million increase from currency exchange rates.
• Fluctuations in currency exchange rates decreased Chemicals Segment operating income by approximately $5 million in Q3 2026 and $23 million in the first nine months of 2026.
• The Component Products Segment recognized higher gross margins at security products and marine components reporting units.
• The Real Estate segment sold its office building in Q2 2026, recognizing a gain of $5.8 million.