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Celanese (CE) Beats on Q3 Earnings, Raises Outlook

Chemical and advanced materials maker Celanese Corporation' s CE third-quarter 2015 adjusted earnings (excluding one-time items) of $1.50 per share fell 6.8% from $1.61 per share reported in the year-ago quarter. Earnings, however, topped the Zacks Consensus Estimate of $1.38. The results were aided by the company's continued focus on opportunities to serve key markets and productivity initiatives.

The company raised its adjusted earnings forecast for 2015. Its shares rose around 2.9% to close at $65.82 on Tuesday.

Celanese Corporation - Earnings Surprise | FindTheBest

Revenues and Margins

Sales in the reported quarter were $1,413 million, down roughly 20.1% year over year. It also missed the Zacks Consensus Estimate of $1,548 million.

Segment income margin was a third quarter record of 21.6%, which was a 150 basis point (bps) improvement over the prior year on record margin in the Materials Solutions unit and productivity actions. This more than offset reduced margin in the Acetyl Chain division due to increased methanol costs ahead of the start up of the Clear Lake, TX, methanol unit.

Segment Review

Advanced Engineered Materials: The segment generated income of $106 million on net sales of $326 million in the third quarter. The segment also delivered income margin of 32.5%, up 870 bps year over year and down 300 bps sequentially. Volumes declined 5% sequentially, as the businesses maintained pricing discipline and commercial selectivity while prioritizing and commercializing its most profitable projects. The company completed and launched over 200 projects in this segment during the reported quarter.

Consumer Specialties: Income margin was a record of 42.5% in the reported quarter, up 30 bps sequentially, mainly due to continued productivity actions. Segment income was $105 million on net sales of $247 million, at par with the sequential quarter. Third quarter volume and pricing were steady with second quarter levels.

Acetyl Chain: This segment includes the results of Celanese's Industrial Specialties and Acetyl Intermediates. Core income in this segment was $112 million on net sales of $872 million. Core income margin was 12.8%, down 220 bps sequentially mainly due to increased U.S. methanol costs, resulting from the expiration of an advantaged long-term supply contract at the end of the second quarter. Volume and prices fell 2% percent sequentially due to normal seasonality in emulsion polymers and continued soft demand in China.

Financials

Cash and cash equivalents were $952 million as of Sep 30, 2015, down 37% year over year. The company's long-term debt stood at $2,541 million as of Sep 30, 2015, down roughly 4% year over year.

Celanese generated $173 million in cash from operating activities and free cash flow of $101 million in the third quarter. Operating cash flow fell sequentially, due to the timing of cash tax payments and receipt of affiliate dividends vis-à-vis the prior quarter. Net capital expenditures were $72 million for the quarter.

The company bought back 6.6 million shares during the quarter. The company also declared a new $1 billion repurchase authorization that it plans to execute over the next two years.

Developments

Celanese announced that it has completed the construction of its Clear Lake, TX methanol unit, which is now fully operational. The methanol unit has an annual capacity of 1.3 million metric tons and is a joint venture between Celanese and Mitsui & Co., Ltd., of Tokyo, Japan.

The unit provides Celanese with supply of a critical raw material. Moreover, this allows the Acetyl Chain to gain the economic benefit of abundant low-cost U.S. natural gas.

Outlook

Per management, Celanese is confident that it can drive performance through the rest of 2015 despite currency headwinds and a challenging macro environment, especially the recent volatility in China. Celanese expects to offset these headwinds with its focus to create customer value to match market needs on moderate macroeconomic trends. This led the company to raise its adjusted earnings outlook to a range of $5.90-$6.10 per share for 2015 (from $5.70-$6.00 per share).

Zacks Rank

Celanese currently carries a Zacks Rank #1 (Strong Buy).

Better-ranked stocks in the diversified chemical space include Albemarle Corporation ALB , Koninklijke DSM N.V. RDSMY and Koppers Holdings Inc. KOP . All of them hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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