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LyondellBasell (LYB) Down 5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for LyondellBasell (LYB). Shares have lost about 5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is LyondellBasell due for a breakout? 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 catalysts.

LyondellBasell's Q2 Earnings and Sales Trail Estimates

LyondellBasell logged net profits of $1,003 million or $2.70 per share in second-quarter 2019, down from $1,654 million or $4.22 in the year-ago quarter.

Barring one-time items, adjusted earnings came in at $2.75 per share, missing the Zacks Consensus Estimate of $2.84.

LyondellBasell generated revenues of $9,048 million, down roughly 11.3% year over year. The figure also trailed the Zacks Consensus Estimate of $9,256.2 million.

Consolidated EBITDA declined around 21.4% year over year to $1,579 million.  

Segment Review

In the Olefins & Polyolefins — Americas division, EBITDA fell around 5.4% year over year to $635 million. Olefin results rose by more than $150 million year over year. Polyolefins results dropped around $190 million, mainly due to a spread decline in polyethylene over ethylene.

The Olefins & Polyolefins — Europe, Asia, International (EAI) segment reported a decline in EBITDA of around 6.8% year over year to $331 million. Olefin results rose more than $30 million on a year-over-year basis due to margin improvement as ethylene price declines were outpaced by declines in feedstock costs. Consolidated polyolefins results declined around $25 million.  

The Advanced Polymer Solutions (APS) segment’s EBITDA was $120 million in the second quarter compared with $121 million in second-quarter 2018.  

EBITDA in the Intermediates and Derivatives segment declined around 30.2% on a year-over-year basis to $448 million. Propylene Oxide & Derivatives results were affected by decline in volume. Also, lower volume and margin across most products impacted Intermediate Chemicals results.

EBITDA in the Refining segment amounted to a loss of $66 million against profit of $104 million in the year-ago quarter. Crude throughput was relatively unchanged at 261,000 barrels per day.

The Technology segment’s EBITDA fell 5.3% year over year to $107 million.

Financials

LyondellBasell had cash and liquid investments of $1.9 billion at the end of the quarter.

The company launched a tender offer, which resulted in the repurchase of 35.1 million shares in July.   

Outlook

In July, the company witnessed persistent demand for the majority of the products, with consumer-based demand driving stable volumes in the Olefins & Polyolefins segments.

In North America, the majority of the polyethylene plants and ethylene crackers that were planned to commence between 2016 and 2019 has been commissioned. Per the company, more than 70% of the polyethylene capacity is now operational.  

It anticipates low-cost natural gas liquid feedstocks to continue driving strong chain margin in the Olefins & Polyolefins Americas unit as well as Oxyfuels and Related Products business. Going forward, the company intends to start-up its Hyperzone HDPE plant during the second half of 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, LyondellBasell has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward 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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