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Is LyondellBasell (LYB) Set to Disappoint in Q2 Earnings?

LyondellBasell IndustriesLYB is set to release its second-quarter 2016 results ahead of the bell on Jul 29.

Last quarter, the Netherlands-based chemical giant delivered a positive earnings surprise of 8.77%. However, the company's revenues plummeted year over year and missed expectations.

LyondellBasell has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average earnings beat of 7.75%.

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

Factors to Consider

LyondellBasell, in its first-quarter 2016 call, said that the global olefin and polyolefin markets will tighten in the second quarter as significant industry capacity will be offline in the U.S. and Europe due to planned maintenance.

LyondellBasell continues to benefit from the favorable North American natural gas environment. It should also gain from its ethylene and polyethylene expansions. It is executing plans to leverage the U.S. natural gas liquids (NGLs) advantage. Its expansion programs across Channelview, La Porte and Corpus Christi facilities in Texas, which benefit from shale gas production, remain on schedule.

LyondellBasell has already completed an 800 million pound per year expansion at its La Porte site and a 250 million pound per year expansion at the Channelview facility. The addition of 800 million pounds of capacity at its Corpus Christi plant is expected to be completed by third-quarter 2016. It is also advancing plans to construct a world-scale plant on the U.S. Gulf Coast for producing propylene oxide ("PO") and tertiary butyl alcohol ("TBA"), leveraging the shale gas boom in the region.

LyondellBasell has a strong focus on providing shareholder returns. In May 2016, the company's shareholders approved a 9% hike in interim dividend, bringing it to 85 cents per share quarterly and $3.40 per share annually. A new share buyback program to repurchase up to 10% of the company's shares has also been authorized.

However, the company is negatively affected by the low oil price environment. Continuation of this can hurt its U.S. ethylene margins and in turn, reduce profitability. Moreover, the maintenance turnarounds are expected to impact the quarter negatively. These will likely affect results by roughly $20−$30 million in the second quarter while a refinery repair is expected to have an additional $40−$70 million impact.

LyondellBasell is also exposed to the macroeconomic uncertainties and volatility in the end-use market it caters to. Operating in a highly competitive market, it also faces pricing pressures.

LYONDELLBASEL-A Price and EPS Surprise

LYONDELLBASEL-A Price and EPS Surprise | LYONDELLBASEL-A Quote

Earnings Whispers

Our proven model does not conclusively show that LyondellBasell is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for LyondellBasell is -8.30%. This is because the Most Accurate Estimate is $2.32, while the Zacks Consensus Estimate is pegged at $2.53.

Zacks Rank: LyondellBasell's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some stocks in the chemical space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

Huntsman Corporation HUN has an Earnings ESP of +7.84% and a Zacks Rank #1 (Strong Buy).

FMC Corp FMC has an Earnings ESP of +4.48% and a Zacks Rank #2 (Buy).

The Dow Chemical Company DOW has an Earnings ESP of +2.35% and a Zacks Rank #3.

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DOW CHEMICAL (DOW): Free Stock Analysis Report

FMC CORP (FMC): Free Stock Analysis Report

HUNTSMAN CORP (HUN): Free Stock Analysis Report

LYONDELLBASEL-A (LYB): Free Stock Analysis Report

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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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