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Methanex Misses Estimates in 1Q - Analyst Blog

Posted
4/26/2013 4:23:00 PM
By: Zacks.com
Referenced Stocks:CHK;LYB;MEOH;SHECY

Methanex Corporation 's ( MEOH ) earnings of 63 cents per share for the first quarter of 2013 missed the Zacks Consensus Estimate of 68 cents, reflecting a negative surprise of around 7.4%. The company posted a profit (attributable to shareholders) of $60 million in the reported quarter, up from $22 million recorded a year ago.

Revenues remained flat year over year at $651.9 million, missing the Zacks Consensus Estimate of $777 million. Sales volumes in the quarter totaled 1,831,000 tons, up 0.8% from the year-ago quarter.

Average realized price per ton amounted to $412 in the quarter compared with $382 a year ago. Total production in the quarter was 1,057,000 tons compared with 945,000 tons in the prior-year quarter. Methanex-produced methanol sales volume was 1,024,000 tons versus 926,000 tons a year ago.

Methanex, during the quarter, forged a 10-year supply pact with Oklahoma-based Chesapeake Energy Corporation ( CHK ), the second largest natural gas producer in the U.S. Under the agreement, Chesapeake will supply natural gas for Methanex's methanol plant in Geismar, La. The supply will begin with the startup of the 1-million ton plant in late 2014.

Production Summary

Chile: The company produced 55,000 tons in Chile in the reported quarter, operating one plant with roughly 20% capacity, versus 113,000 tons in the prior-year quarter. Methanex produced an additional 6,000 tons under another natural gas receiving arrangement from Argentina in the quarter.

The gas supply outlook in Chile is more challenging and Methanex's decision of idling its Chile operations remains in place due to the lack of natural gas feedstock. However, investments for exploration and development of natural gas are done in the southern Chile plant to keep the plant operating. Methanex is continuing to work with Empresa Nacional del Petroleo (ENAP) and others to secure sufficient natural gas to sustain its operations.

The availability of natural gas supply, level of exploration and development in southern Chile are instrumental in determining the future of Chile operations.

New Zealand: Methanex produced 309,000 tons in the quarter, much higher than 174,000 tons produced in the same period last year. The company lost roughly 60,000 tons of production due to an equipment failure at the Motunui facilities, which resulted in an unplanned disruption.

The company is planning to restart its Waitara Valley plant and de-bottlenecking the Motunui facilities, which could produce to the site's full capacity of 2.4 million tons annually by the end of 2013.

Trinidad: Methanex owns two facilities in Trinidad. The company's fully-owned Titan facility produced 181,000 tons in the first quarter, lower than 215,000 tons produced in the year-ago quarter, mainly due to periodic natural gas curtailments and minor unplanned disruptions.

The Atlas facility, in which the company holds a 63.1% interest, produced 248,000 tons in the quarter, higher than 127,000 tons produced last year. Methanex is facing natural gas supply restrictions in Trinidad. Although it is trying to find a solution to this problem, Methanex expects to experience natural gas curtailments in the near term.

Egypt: The facility produced 133,000 tons in the quarter, down from 202,000 tons produced a year ago. The decline in production was a result of natural gas supply restrictions.

The company faced periodic natural gas shortages in this region, which are expected to persist in the future due to increased electricity demand during the summer.

Medicine Hat: The facility produced 131,000 tons in the quarter, up from 114,000 tons produced last year owing to the age of its catalyst and the availability of the natural gas feedstock. Methanex is currently de-bottlenecking the facility to add another 90,000 tons of annual production capacity to Medicine Hat operation by the end of the third quarter of 2013.

Financial Position

Consolidated cash flows from operating activities increased 59.5% to $118 million in the first quarter from $74 million in the prior-year quarter. Methanex ended the quarter with a strong liquidity position with cash and cash equivalents of $726.8 million, up 24.4% year over year. Long-term debt, as of Mar 31, 2013, was $1,146.4 million compared with $881.3 million, as of Mar 31, 2012.

Dividend

The Board of Methanex declared a 8% hike in its quarterly dividend to 20 cents per share, payable on Jun 30 2013, to shareholders of record as of Jun 16, 2013. This represents the ninth increase since the initiation of a dividend in 2002.

Outlook

Methanex believes that the methanol industry and its pricing environment would appear to be attractive in the longer term as global demand is expected to surpass new capacity additions.

Methanex stated that methanol price will depend on a number of factors such as economic health, operating rates, global energy prices and demand. Methanex believes that its healthy financial position, strong global supply network and competitive-cost position will strengthen its position as the global leader in the methanol industry and enable it to continue to deliver incremental returns to shareholders.

Methanex further expects to start a 0.7 million ton plant in Azerbaijan and restart a 0.8 million ton plant in Channelview, Tex., in 2013. With the continued initiatives to increase production in New Zealand and progress in the Louisiana project, the company has the potential to increase its operating capacity and pursue other strategic growth opportunities over the next few years, which in turn, will contribute to cash generation and increased supply to customers.

Methanex retains a Zacks Rank #2 (Buy).

Other companies in the chemical industry that are worth considering include Shin-Etsu Chemical Co., Ltd. ( SHECY ) and LyondellBasell Industries NV ( LYB ). While Shin-Etsu Chemical retains a Zacks Rank #1 (Strong Buy), LyondellBasell carries a Zacks Rank #2 (Buy).



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