Specialty material company Celanese Corporation (CE) reported first-quarter 2012 adjusted earnings (excluding one-time charges and gains) of 72 cents per share, down from 96 cents a year ago.
The results were below the Zacks Consensus Estimate of 77 cents. Profit, as reported, jumped 28.9% year over year to $183 million (or $1.15 per share).
Revenues and Margins
Sales for the quarter amounted to $1,633 million, up 3% year over year, exceeding the Zacks Consensus Estimate of $1,616 million. The growth was driven by higher volumes and pricing in the company’s acetyl intermediates and industrial specialties divisions. However, higher costs and weaker demand in Europe led to a decline in operating profit by 91.8% to $98 million.
Segment Review
Advanced Engineered Materials: The segment was impacted by challenging conditions in Europe and lower auto builds, resulting in lower sales of $317 million in the reported quarter, down from $328 million in the year-ago quarter.
Though pricing rose by 3%, volumes decreased due to weak demand in industrial goods in Europe and electronics in Asia. Operating EBITDA decreased by 9.6% to $94 million due to lower investments in future business opportunities.
The company’s equity earnings stood at $43 million, up from $34 million in the year-ago period driven by higher earnings in its Ibn Sina venture. Operating profit in the reported quarter decreased by 44.7% to $21 million. Depreciation and amortization increased by $6 million over the prior year, as a result of the startup and expansion of the company's polyacetal (POM) facility in Frankfurt Hoechst Industrial Park.
Consumer Specialties: Sales of $264 million were almost flat compared with the year-ago quarter. There was an interruption in production of the company’s Acetate Products business, resulting in lower volumes. Operating EBITDA inched down2.9% to $66 million. Operating profit amounted to $39 million, including other charges and other adjustments of $10 million compared with $54 million in year-ago quarter.
Industrial Specialties: Net sales came in at $309 million, up 6.6% from $290 million in the year-ago quarter. The segment benefited from higher pricing due to improved product mix and volumes. Higher volumes resulted from higher demand in North America and Asia and additional volume increases from the company’s acquisitions.
Operating EBITDA dropped $1 million to $34 million due to higher raw material costs, including ethylene. Operating profit came in at $19 million, a decline of 24% year over year due to higher depreciation and amortization as the company invested in innovation and capacity expansion at its vinyl acetate ethylene production facility in Nanjing, China and its EVA Performance Polymers facility in Edmonton, Canada.
Acetyl Intermediates: The segment witnessed a 4.7% increase in sales to $852 million led by higher volumes, primarily in downstream derivatives. Operating EBITDA decreased by 32% to $83 million due to increased raw material costs, primarily ethylene. Profits were also hurt by lingering effects of inventory destocking at the end of 2011. Operating profit was $60 million for the quarter compared with $112 million in the same period last year.
Liquidity
Cash and cash equivalents were $727 million as of March 31, 2012, versus $682 million as of December 31, 2011. The company’s net debt stood at $2,303 million, a $32 million decrease from the end of 2011.
Dividend
The company approved a 25% hike in its quarterly common stock cash dividend. The dividend rate rose from 6 cents to 7.5 cents per share on a quarterly basis and from 24 cents to 30 cents per share on an annual basis, effective August 2012.
Acquisition
Celanese completed the acquisition of certain assets from Ashland Inc. and added two product lines, Vinac and Flexbond, to its portfolio, which will support the strategic growth of the Celanese Emulsion Polymers business.
Outlook
According to Celanese, challenging market conditions in Europe and Asia will last longer this year than expected. Therefore, the company will operate plants at appropriate levels to maximize profits while keeping a lid on discretionary spending. Celaneseexpects to cut costs, run plants better as well as expand customer relationships to counteract weak demand.
Celanese, which competes with BASF SE (BASFY) and Methanex Corporation (MEOH), currently retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating. Currently, we have a long-term (more than 6 months) Neutral recommendation on the stock.
BASF SE (BASFY): Free Stock Analysis Report
CELANESE CP-A (CE): Free Stock Analysis Report
METHANEX CORP (MEOH): Free Stock Analysis Report
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