Technology

Why Is LyondellBasell (LYB) Down 14.4% Since Last Earnings Report?

A month has gone by since the last earnings report for LyondellBasell (LYB). Shares have lost about 14.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is LyondellBasell due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

LyondellBasell's Earnings & Sales Lag Estimates in Q4

LyondellBasell posted profits of $612 million or $1.83 per share in fourth-quarter 2019 compared with $692 million or $1.79 in the year-ago quarter.

Barring one-time items, adjusted earnings came in at $1.91 per share that missed the Zacks Consensus Estimate of $2.26.

Revenues fell 7.9% year over year to $8,179 million in the reported quarter. The figure also trailed the consensus mark of $8,427.1 million.

Consolidated EBITDA fell 3.3% year over year to $1,172 million.

In the fourth quarter, results in most of the segments were affected by a slowdown in industrial demand as well as normal seasonality.

2019 Highlights

In 2019, total revenues fell 11% year over year to $34,727 million. Net earnings came in at $3,397 million or $9.58 per share for the year, down from $4,690 million or $12.01 in 2018.

Segment Review

In the Olefins & Polyolefins — Americas division, EBITDA fell 21.1% year over year to $498 million. Olefin results increased more than $60 million year over year. The company stated that ethylene margin expanded as lower feedstock costs were partly offset by a lower propylene price. Polyolefin results dropped around $235 million mainly due to spread decline in polypropylene and polyethylene.

The Olefins & Polyolefins — Europe, Asia, International segment witnessed a rise in EBITDA of 13.4% year over year to $144 million. Olefin remained flat on a year-over-year basis. Per the company, volumes were boosted by improved reliability with unplanned and planned maintenance affecting fourth-quarter 2018 results. This was offset by a decline in margin.

The Advanced Polymer Solutions (APS) segment saw a decline in EBITDA to $54 million from $86 million in the year-ago quarter. Volumes were affected by softness in automotive market.  Advanced Polymers margins declined by $10 million due to lower volumes.

EBITDA in the Intermediates and Derivatives segment went down 13.2% on a year-over-year basis to $329 million. Propylene Oxide & Derivatives results were affected by sales mix, which were partly offset by higher volumes. Volumes rose due to scheduled maintenance in fourth-quarter 2018.

EBITDA in the Refining segment were $22 million in the reported quarter against a loss of $84 million in the year-ago quarter. The company stated that Maya 2-1-1 crack spread rose considerably year over year in the fourth quarter to $19.44 per barrel. However, margin improvements from the Maya 2-1-1 crack spread was partly offset by higher prices of heavy sour crude oil bought in the U.S. Gulf Coast market. Also, the Houston Refinery operated at 267,000 barrels per day, up 45.1% year over year, due to the completion of planned maintenance in second-half 2018.

The Technology segment’s EBITDA rose to $138 million in the reported quarter from $68 million a year ago, mainly due to higher licensing revenues.

Financials

As of Dec 31, 2019, LyondellBasell had cash and liquid investments of $1.1 billion.

In 2019, the company paid out dividends worth $1.5 billion. It also repurchased 42.7 million ordinary shares during the year. The company had 333 million common shares outstanding as of Dec 31, 2019.

Outlook

LyondellBasell expects to witness normal seasonal improvements in its businesses gradually through the second and the third quarter of 2020. The company believes that a rebound in industrial demand as well as favorable resolution of trade policies will provide substantial upside for the industry. It believes that the foundations of cost management, operational excellence and disciplined capital allocation will continue to serve amid the current challenging environment.

Considering the completion of its new Hyperzone project and the expected benefits from the IMO 2020 regulations, the company expects to extend its impressive track record of generating cash.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, LyondellBasell has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise LyondellBasell has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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