LyondellBasell Poised on Expansion Actions Amid Headwinds
We issued an updated research report on LyondellBasell Industries N.V. LYB on Nov 24.
LyondellBasell’s net profits, as reported, rose around 10.8% year over year to $1,058 million or $2.67 per share in the third quarter of 2017. Barring one-time items, adjusted earnings came in at $2.41 for the quarter, which missed the Zacks Consensus Estimate of $2.43.
Revenues rose roughly 15.6% year over year to $8,516 million in the quarter, beating the Zacks Consensus Estimate of $8,090 million.
The company, in its third-quarter call, noted that hurricane Harvey led to reduced inventories across the petrochemical industry. This has resulted in further delays in the startup of new U.S. ethylene and derivative capacity. The company expects global markets to remain tight to balanced for the rest of 2017 as the industry works to rebuild inventories during the fourth quarter.
LyondellBasell Industries NV Price and Consensus
LyondellBasell Industries NV Price and Consensus | LyondellBasell Industries NV Quote
LyondellBasell is benefiting from the favorable North American natural gas environment. It is executing its expansion projects to leverage the U.S. natural gas liquids advantage. The company’s expansion initiatives are likely to boost the capacity and add to its earnings.
The company is constructing a high-density polyethylene (HDPE) plant on the U.S. Gulf Coast that will employ its proprietary Hyperzone PE technology. The facility is expected to have an annual capacity of 1.1 billion pounds. LyondellBasell is also constructing a world scale plant on the U.S. Gulf Coast for producing propylene oxide (PO) and tertiary butyl alcohol (TBA), which will have an annual capacity of 1 billion pounds of PO and 2.2 billion pounds of TBA and its derivatives.
LyondellBasell has also commenced production at its new polypropylene (PP) compounding plant in Dalian, China. The 20 kiloton per year plant is the company's third facility in China. It is strategically located to cater the country’s growing automotive market.
Moreover, the company remains committed to deliver greater value to shareholders by leveraging healthy cash flows. LyondellBasell generated $1.5 billion of cash flows from operations in the third quarter and returned $652 million to shareholders through dividends and share repurchases.
However, LyondellBasell faces headwind from Hurricane Harvey, which is expected to impact its fourth-quarter results. Hurricane Harvey adversely impacted the company’s nine major U.S. Gulf Coast sites during the previous quarter, which led to the shutdown of an ethylene cracker.
The company’s La Porte ethylene cracker had an unplanned shutdown in the third quarter due to Hurricane Harvey, affecting production and sales volumes in the quarter. LyondellBasell sees lost sales and expenses from Harvey to impact its fourth-quarter 2017 results by roughly $100 million.
The company also expects lost production due to an unplanned maintenance at its ethylene cracker to affect its fourth-quarter results by roughly $40 million.
LyondellBasell’s shares have moved up 15.6% in the last three months, outperforming the industry’s 11.8% growth.
Zacks Rank & Stocks to Consider
LyondellBasell currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Koppers Holdings Inc. KOP, Daqo New Energy Corp. DQ and Kronos Worldwide Inc. KRO. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Koppers has an expected long-term earnings growth rate of 18%. Its shares have moved up 20.9% year to date.
Daqo New Energy has an expected long-term earnings growth rate of 7%. Its shares have surged a whopping 176.5% year to date.
Kronos Worldwide has an expected long-term earnings growth rate of 5%. Its shares have rallied 144.9% year to date.
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