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LyondellBasell (LYB) Up 10% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for LyondellBasell (LYB). Shares have added about 10% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is LyondellBasell due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

LyondellBasell's Q1 Earnings Beat, Sales Lag Estimates

LyondellBasell posted profits of $144 million or 42 cents per share in first-quarter 2020, down from $817 million or $2.19 in the year-ago quarter.

Barring one-time items, adjusted earnings came in at $1.47 per share that beat the Zacks Consensus Estimate of $1.36.

Revenues fell 14.6% year over year to $7,494 million in the reported quarter. The figure also trailed the consensus mark of $7,507.2 million.

Consolidated EBITDA fell 54.8% year over year to $646 million.

Segment Review

In the Olefins & Polyolefins — Americas division, EBITDA fell 29.1% year over year to $366 million. Polyolefin results dropped around $110 million due to lower margins, partly offset by higher polyethylene volume.

The Olefins & Polyolefins — Europe, Asia, International segment witnessed a fall in EBITDA of 36.1% year over year to $189 million. Olefin results rose around $45 million on a year-over-year basis with an improvement in both volume and margin. Ethylene margin expanded mainly due to lower feedstock prices, which was partly offset by decline in ethylene prices.

The Advanced Polymer Solutions segment saw a decline in EBITDA to $113 million from $148 million in the year-ago quarter. Compounding & Solutions results declined $30 million mainly due to lower demand stemming from persistently low automotive demand and the impact of coronavirus.

EBITDA in the Intermediates and Derivatives segment fell 47.9% on a year-over-year basis to $203 million.  

EBITDA in the Refining segment came in at a loss of $272 million in the reported quarter compared with a loss of $15 million in the year-ago quarter.  Margin declined due to the inability to upgrade products during an unplanned outage.  Crude throughput fell by 33,000 barrels per day.

The Technology segment’s EBITDA fell to $56 million in the reported quarter from $83 million in the prior-year quarter, mainly due to lower licensing revenues.

Financials

As of Mar 31, LyondellBasell had cash and liquid investments of $1.8 billion.

In the first quarter, the company paid out dividends worth $351 million. It also had 334 million common shares outstanding as of Mar 31.

Outlook

LyondellBasell expects low crude oil pricing, the coronavirus pandemic and a slowing economy to affect its business in the second quarter. The company’s order books for April and May indicate strong ongoing demand for its polyolefins in medical and consumer packaging applications. Demand for industrial and durable products markets are expected to remain weak. Moreover, significantly lower demand for transportation fuels will impact the Refining and Oxyfuels & Related Products businesses.

The company is undertaking actions to manage risk by accelerating cost-saving initiatives, aggressively managing working capital and lowering capital expenditures for 2020 by $500 million. It also increased liquidity to more than $5 billion during April.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -57.81% due to these changes.

VGM Scores

Currently, LyondellBasell has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, LyondellBasell has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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