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Celanese (CE) to Report Q4 Earnings: What's in the Offing?

Anindya Barman

Celanese Corporation CE is set to release fourth-quarter 2018 results after the bell on Jan 28.

The chemical and specialty materials maker saw its earnings from continuing operations (as reported) surge around 79% year over year in the third quarter of 2018. The company benefited from gains in its Engineered Materials (EM) and Acetyl Chain units in the quarter. Higher pricing across these businesses also supported the results.

Adjusted earnings of $2.96 a share for the third quarter also rose 53% from $1.93 a year ago and surpassed the Zacks Consensus Estimate of $2.75. Revenues rose roughly 13% year over year to $1,771 million but lagged the Zacks Consensus Estimate of $1,817 million.

Celanese has an impressive earnings surprise history. The company has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of roughly 13.3%.

Celanese’s shares have lost 11.5% over a year, underperforming its industry’s 6.9% decline.


 

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors to Watch For

Celanese, in October 2018, raised its adjusted earnings per share guidance for 2018 to roughly $10.90-$11.10 from its earlier view of $10.50-$10.75 factoring in strength in its EM and Acetyl Chain units. The company expects the momentum in Acetyl Chain and EM to continue. The EM segment is expected to keep the pace of earnings growth with traction from new projects and bolt-on acquisitions.

Celanese’s revenues for the fourth quarter are projected to increase 8.6% year over year, as the Zacks Consensus Estimate is currently pegged at $1,730 million.

For the fourth quarter, net sales in the EM division are projected to increase roughly 17.3% year over year as the Zacks Consensus Estimate for the same is currently pegged at $645 million.

Moreover, net sales in the Acetyl Intermediates unit are projected to increase roughly 15% year over year as the Zacks Consensus Estimate for the same is currently pegged at $826 million.

Net sales in the Industrial Specialties unit is expected to rise roughly 3.6% year over year, as the Zacks Consensus Estimate is currently pegged at $261 million. The same for the Acetate Tow division is projected to decline 18.7% as the Zacks Consensus Estimate currently stands at $152 million.  

Celanese’s strategic measures including cost savings through productivity initiatives, price increase actions and efficiency enhancement are expected to continue to drive its earnings in the fourth quarter. Its bottom line is expected to be driven by productivity actions and operational improvement.

The company’s EM unit is poised for strong growth on the back of recent acquisitions, new business wins, growth in Asia and significant project commercialization.

Celanese also continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies. The acquisitions of SO.F.TER., Nilit and Omni Plastics are expected to significantly contribute to earnings expansion in the EM segment.

However, Celanese faces pricing pressure in its Acetate Tow segment. Low utilization rates across the tow industry are affecting the prices of acetate tow. Lower tow prices are, in turn, pressuring the earnings generated by the Acetate Tow unit. Demand and utilization rates remain subdued across the tow industry. As such, margins for the Acetate Tow unit are expected to remain under pressure in the to-be-reported quarter.

The company is also exposed to margin pressure from raw material cost inflation as well as elevated energy and logistic costs. It is taking pricing actions amid an inflationary environment.

Earnings Whispers

Our proven model does not show that Celanese is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Celanese is -2.69%. This is because the Most Accurate Estimate is currently pegged at $2.36 while the Zacks Consensus Estimate stands at $2.42. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Celanese currently carries a Zacks Rank #3, which when combined with a negative ESP, makes surprise prediction difficult.  

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Celanese Corporation Price and Consensus

 

Celanese Corporation Price and Consensus | Celanese Corporation Quote

Stocks to Consider

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

New Gold Inc. NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teck Resources Limited TECK has an Earnings ESP of +8.41% and carries a Zacks Rank #2.
 
LyondellBasell Industries N.V. LYB has an Earnings ESP of +7.44% and carries a Zacks Rank #3.
 
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