Celanese Misses Earnings & Revs in 2Q

Zacks

Chemical and advanced materials maker Celanese Corporation’s (CE) second-quarter 2013 adjusted earnings (excluding one-time items) of $1.12 per share missed the Zacks Consensus Estimate of $1.16.

Earnings (as reported) from continuing operation were 83 cents a share in the quarter, down 40% from $1.38 recorded a year ago.

Sales in the quarter were $1,653 million, down 1.3% year over year, missing the Zacks Consensus Estimate of $1,661 million.

Segment Review

Advanced Engineered Materials: Sales increased 7% sequentially to $352 million in the second quarter due to record quarterly volumes. The segment’s adjusted earnings before interest and taxes (:EBIT) also increased 10.3% sequentially in the quarter due to constant success in global auto penetration and improved global product mix.

Consumer Specialties: Sales rose 6.4% sequentially to $314 million in the quarter. The segment’s adjusted EBIT remained flat versus the sequential quarter at $109 million. Increased global demand for acetate tow led to sequential volumes and price increases.

Industrial Specialties: Net sales increased 2.4% from the previous quarter to $295 million. Adjusted EBIT increased 18.8% sequentially to $19 million as record results in Emulsions more than offset continued weak global demand for Ethylene Vinyl Acetate (:EVA) applications. Volumes increased 2% while price jumped 1%.

Acetyl Intermediates: The segment’s sales were almost in line with the previous quarter and came in at $809 million. Adjusted EBIT decreased 16.5% sequentially to $66 million owing to flat volumes and prices as a result of weak global demand for acetyl derivative products in Europe and Asia. The company also faced raw material supply issue at one of its facilities along with company and customer turnarounds in vinyl acetate monomer (:VAM) that unfavorably impacted segment income.

Liquidity

Cash and cash equivalents were $1,107 million as of Jun 30, 2013, versus $959 million as of Dec 31, 2012. The company’s long-term debt stood at $2,860 million as of Jun 30, 2013, compared with $2,930 million as of Dec 31, 2012. Celanese generated $229 million in cash from operating activities in the second quarter of 2013.

Dividend

Celanese’s board approved a 20% hike in the company's Series A Common Stock quarterly cash dividend. The dividend rate increased to 9 cents from 7.5 cents per share on a quarterly basis and to 36 cents from 30 cents per share on an annual basis. The new dividend rate was effective from May 2013.

Joint Venture

Celanese inked a deal with Mitsui & Co., Ltd. of Tokyo, Japan, to form a joint venture for the production of methanol at its integrated chemical plant in Clear Lake, Texas. The total investment in the facility is expected to be $800 million while Celanese's share of the cash investment is estimated to be $300 million, in addition to earlier invested assets at the company's Clear Lake facility. The planned methanol plant will have an annual capacity of 1.3 million tons and is expected to commence operations in mid-2015.

Outlook

Celanese expects the challenging economic conditions to persist throughout 2013. For 2013, it expects earnings growth on the back of company-specific initiatives to be consistent with its long-term growth plan of 12%. However, the company remains concerned that further decline in global demand would affect its future performance.

Celanese is among the world’s largest producers of acetyl products as well as the leading global producer of high-performance engineered polymers. Celanese plans to cut costs and run its plants more efficiently to counter weak demand. Moreover, it is aggressively expanding capacity in the emerging Asian markets. The company’s strong presence in the emerging markets should enable it to deliver incremental earnings in 2013.

However, Celanese is witnessing weak demand and pricing in its core acetyl business. Moreover, it is exposed to volatility in raw material costs and currency headwinds.

Celanese currently carries a short-term (1 to 3 months) Zacks Rank #4 (Sell).

Other companies in the chemical industry having favorable Zacks Rank are Cytec Indutries Inc. (CYT), Northern Technologies International Inc. (NTIC) and PPG Industries Inc. (PPG) While Cytec Industries and Northern Technologies hold a Zacks Rank #1 (Strong Buy), PPG Industries carries a Zacks Rank #2 (Buy).
 

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