We have retained our Neutral recommendation on chemical and advanced materials maker Celanese Corporation (CE) following its mixed fourth-quarter 2012 results. We remain on the sidelines factoring in weak demand for acetyl products.
The company’s adjusted earnings of 67 cents per share for the fourth quarter, posted on Jan 28, beat the Zacks Consensus Estimate by 4 cents. However, sales fell 7% year over year to roughly $1.5 billion and missed expectations. Weak pricing and lower volume in the Acetyl Intermediates segment hurt revenues. The company expects the challenging economic conditions to sustain moving ahead.
Celanese is among the world’s largest producers of acetyl products as well as the leading global producer of high-performance engineered polymers. The company’s strong presence in emerging markets will enable it to deliver incremental earnings in 2013. Moreover, Celanese remains focused on returning value to its shareholders, backed by strong cash flows.
Celanese is aggressively expanding capacity in the emerging Asian markets. Its expansion initiatives in China are expected to support earnings growth. The company’s integrated chemical complex in Nanjing, China, serves as a base for expansion in Asia, supporting the region's increasing demand.
However, Celanese is witnessing weak demand and pricing in its core acetyl business. Weak global demand for acetyl products led to a decline in pricing and volume in the Acetyl Intermediates division in the fourth quarter. The challenging economic conditions in Europe and sluggish growth in Asia may impact the company’s results moving ahead.
Moreover, Celanese is exposed to volatility in raw material costs and currency headwinds. The company’s balance sheet leverage is also relatively high, limiting its financial flexibility.
Celanese currently carries a short-term (1 to 3 months) Zacks Rank #3 (Hold).
Other Stocks to Consider
Other companies in the chemical industry worth considering are Akzo Nobel NV (AKZOY), BASF SE (BASFY) and Air Products (APD). While both Akzo Nobel and BASF hold a Zacks Rank #1 (Strong Buy), Air Products retains a Zacks Rank #2 (Buy).
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