Moody's affirms Kraton; outlook down to negative

Moody's Investors Service said it affirmed Kraton Polymers LLC's B1 corporate family rating, but revised the company's outlook to negative as Moody's expects continued margin weakness, due to delays in passing on the full extent of raw material cost increases to Kraton customers, which will diminish free cash flow from operations over the next 12 to 18 months.

The agency said that Kraton's margins have been adversely impacted by an upturn in raw material costs such that gross margins for the third quarter have dropped to 16% from 22% year-over-year despite a measure of success in achieving some price increases.

Year to date, Kraton's cost of goods sold, as measured on a dollar/metric ton basis, have increased 11% and only 43% of these higher costs have been passed on to customers, the agency added, noting that margin declines have also served to offset the benefits of successful programs to cut fixed costs.

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