Methanex Corporation (MEOH), the world’s largest supplier of methanol, earned $40.5 million or 43 cents per share in the second quarter of 2011 versus last year’s net income of $14.8 million or 15 cents per share. Earnings missed the Zacks Consensus Estimate of 44 cents per share.
Revenues
Quarterly revenues of $622.8 million outshone the Zacks Consensus Estimate of $592 million and exceeded year-ago revenues of $448.5 million.
Total methanol sales volumes excluding commission sales volumes for the second quarter of 2011 were higher compared with the second quarter of 2010 by 56,000 tons. The higher sales volumes resulted in higher Adjusted EBITDA by $3 million.
Total production climbed to 1.05 million tons in the second quarter of 2011 from 765 thousand tons in the second quarter of 2010. Production gains reflected the opening of plants in Egypt and Medicine Hat, Alberta in the current year. The Egyptian facility started commercial operations in March 2011, while the Medicine Hat plant began production in April 2011.
Costs
Besides producing Methanol, Methanex also trades in the same. During the reported quarter, the company purchased a higher proportion of methanol, which led to higher costs. Logistics costs of $5 million was higher in the second quarter of 2011 versus the comparable year ago quarter. Other costs were higher in the quarter due to lower production at its facilities in Chile and Trinidad and the impact of a weaker US dollar on the cost structure of the company’s operations.
Production Summary
Chile – During the reported quarter the company produced 142,000 tonnes in Chile operating one plant at approximately 50% capacity versus 229,000 tonnes in the prior year quarter. The company operated its methanol facilities in Chile significantly below site capacity due to curtailments of natural gas supply from Argentina.
Trinidad – During the second quarter of 2011 it produced 449,000 tonnes compared with 384,000 tons during the first quarter of 2011 and 320,000 tonnes in the year ago quarter. Production at these facilities was higher by 65,000 tons during the second quarter of 2011 compared with the first quarter of 2011 due to unplanned maintenance activities at the Titan facility during the first quarter of 2011.
New Zealand – During the second quarter of 2011, Methanex produced 207,000 tons versus 21,600 tons during the second quarter of 2010. The company remains focused on accessing additional natural gas supply to increase production in New Zealand. It is continuing to pursue opportunities to obtain economically priced natural gas from suppliers in New Zealand to underpin a restart of a second plant.
Egypt – Methanex has a 60% interest in the facility and has marketing rights for 100% of the production. In the reported quarter, the Egyptian methanol facility produced 178,000 tons.
Medicine Hat-In The facility produced 74,000 tons in the second quarter of 2011.
Financial Review
Consolidated cash flows from operating activities in the second quarter of 2011 were $77.6 million compared with $ $39.4 million in the second quarter of 2010.
Adjusted cash flows from operating activities, which exclude the amounts associated with the 40% non-controlling interests in the methanol facility in Egypt and changes in non-cash working capital, were $86.4 million in the second quarter of 2011 vesus $53.0 million in the second quarter of 2010.
During the second quarter of 2011, debt principal payment of $8 million was paid on the Atlas limited recourse debt facilities.
Dividend
During the second quarter of 2011, the Board of Directors approved a 10% increase in quarterly dividend to shareholders, from $0.155 to $0.17 per share. Methanex paid a quarterly dividend of $16 million.
Outlook
In third-quarter 2011, market conditions have tightened, stemming from continued strong demand and planned and unplanned outages across the industry. Methanol prices have consequentially increased.
Methanex expects to increase its earnings capability as the full impact of Egypt and Medicine Hat production capacity is reflected in its sales volumes of production in the third quarter and beyond. This may be partially offset in the short-term by the impact of lower production from the Atlas facility.
Methanol prices will depend on the strength of the global economy, industry operating rates, global energy prices, the rate of industry restructuring and the strength of global demand. Management believes that the financial position and financial flexibility, outstanding global supply network and competitive-cost position will provide a sound basis for Methanex to continue to be a leader in the methanol industry and invest for expanding its business.
Zacks Recommendation
Methanex Corporation is the world’s largest supplier of methanol to North America, Asia-Pacific, Europe and Latin America with about a 15% market share. About 80% of all methanol output is used in the production of formaldehyde, acetic acid, and a variety of other chemicals, the demand for which is influenced by the levels of global economic activity.
These chemical derivatives are used in the manufacture of a wide range of products including plywood, particleboard, foams, resins and plastics. The remainder of methanol demand largely stems from the energy sector for the production of methyl tertiary-butyl ether (MTBE) – a gasoline component – and as a direct fuel for motor vehicles.
As part of its strategy to strengthen its position as the global leader in the production and marketing of methanol, Methanex intends to continue pursuing new opportunities to enhance its strategic position in the methanol industry.
Weak pricing as well as an increase in global inventories, are negatively affecting the company. Moreover, Methanex operates its Chilean facilities substantially below capacity due to natural gas supply outages which resulted in a 39.8% drop in production to 183,000 tons in the reported quarter.
Methanex faces stiff competition from Celanese Corp. (CE) and Eastman Chemical Co. (EMN).
Currently, Methanex has a short-term (1 to 3 months) Zacks #3 Rank (Hold) but a long- term Neutral recommendation.
CELANESE CP-A (CE): Free Stock Analysis Report
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METHANEX CORP (MEOH): Free Stock Analysis Report
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