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What's in the Cards for LyondellBasell (LYB) in Q1 Earnings?

Zacks Equity Research

LyondellBasell Industries N.V. LYB is set to release first-quarter 2019 results before the opening bell on Apr 26. The company’s operational improvement initiatives and the A. Schulman buyout are expected to support results in the to-be-reported quarter. However, LyondellBasell is expected to face headwind from maintenance outages. Its olefin margins are also likely to remain under pressure.

The chemical maker’s shares have lost around 12.7% over a year, outperforming the roughly 19.9% decline recorded by the industry.


Let's see how things are shaping up for this announcement.

What do the Estimates Say?

The Zacks Consensus Estimate for total first-quarter revenues is pegged at $9,078 million, reflecting year-over-year decline of 7.1%.

At the company's Olefins & Polyolefins – Americas segment (O&P-Americas), revenues are expected to fall 6.5% from the year-ago quarter as the Zacks Consensus Estimate is currently pegged at $2,580 million. The Zacks Consensus Estimate for operating income for the unit stands at $433 million, indicating a 33.5% year over year decline.

Revenues from the Olefins & Polyolefins – Europe, Asia, International (O&P-EAI) division are expected to drop 21.5% year over year as the Zacks Consensus Estimate stands at $2,797 million. The Zacks Consensus Estimate for operating income is pegged at $118 million, reflecting a 68.4% year over year decline.

Revenues for the Intermediates and Derivatives segment is projected to decline 11.3% from the prior-year quarter’s tally as the Zacks Consensus Estimate is pegged at $2,079 million. The Zacks Consensus Estimate for operating income is pegged at $349 million, reflecting a 14.5% year over year decline.

The Zacks Consensus Estimate for revenues at the Refining segment is pegged at $2,112 million, reflecting a 6.4% decrease on a year-over-year basis. The same for operating loss for the unit is $136 million.

The Technology segment sales are expected to rise 9.6% year over year in the to-be-reported quarter as the Zacks Consensus Estimate is pinned at $126 million. Operating income is expected to increase 19.6% as the Zacks Consensus Estimate is $55 million.

Factors at Play

LyondellBasell, in its fourth-quarter call, said that it expects to benefit from an expected improvement in the refining market. It expects stronger contributions from its refinery in 2019.

LyondellBasell is executing its expansion projects to leverage the U.S. natural gas liquids advantage. The company’s operational improvement initiatives are expected to aid to its earnings in the March quarter. Continued strong demand is also expected to support results in the O&P-Americas segment.

The buyout of A. Schulman is also expected to create significant synergies. The acquisition is expected to continue to drive margins in the company’s Advanced Polymer Solutions (“APS”) segment.

However, LyondellBasell’s operations are subject to maintenance outages, which are affecting results. The company expects downtime associated with planned maintenance in the first quarter in the O&P-Americas segment to impact company-wide earnings by $60-$70 million.

Moreover, higher feedstock costs are hurting the company’s olefin margins in the O&P-EAI unit. Lower ethylene prices are also affecting margins in the O&P-Americas segment. Pressure on olefin margins will likely continue in the first quarter.

LyondellBasell Industries N.V. Price and EPS Surprise

 

LyondellBasell Industries N.V. Price and EPS Surprise | LyondellBasell Industries N.V. Quote

Zacks Model

Our proven model does not show that LyondellBasell 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 LyondellBasell is -5.69%. This is because the Most Accurate Estimate is currently pegged at $2.07 while the Zacks Consensus Estimate stands at $2.20. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: LyondellBasell 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.
 
Stocks That Warrant a Look

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:

Arconic Inc. ARNC has an Earnings ESP of +5.06% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AK Steel Holding Corporation AKS has an Earnings ESP of +4.59% and carries a Zacks Rank #3.

Ingevity Corporation NGVT has an Earnings ESP of +6.77% and carries a Zacks Rank #3.

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LyondellBasell Industries N.V. (LYB) : Free Stock Analysis Report
 
Ingevity Corporation (NGVT) : Free Stock Analysis Report
 
Arconic Inc. (ARNC) : Free Stock Analysis Report
 
AK Steel Holding Corporation (AKS) : Free Stock Analysis Report
 
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