Celanese Q3 Earnings Beat, Sales Miss

Chemical and advanced materials maker Celanese Corporation’s (CE) third-quarter 2013 adjusted earnings (excluding one-time items) of $1.20 per share beat the Zacks Consensus Estimate of $1.15.

Earnings (as reported) from continuing operation were $1.07 per share in the quarter, up roughly 34% from 80 cents recorded a year ago.

Sales in the quarter were $1,636 million, up 1.7% year over year, but missed the Zacks Consensus Estimate of $1,643 million.

Segment Review

Advanced Engineered Materials: Sales decreased 1.7% sequentially to $346 million in the third quarter despite lower sequential auto builds in Europe and the U.S. The segment’s adjusted earnings before interest and taxes (EBIT) decreased 5.8% sequentially and income margin decreased to 23.4% in the quarter due to the impact of turnaround activity at the company's Middle East affiliate. However, operating profit increased due to improved mix of higher-value medical applications, lower raw material costs and focused spending initiatives.

Consumer Specialties: Sales declined 1.3% sequentially to $310 million in the quarter. The segment’s adjusted EBIT and income margin remained flat with the prior quarter at $108 million and 34.8%, respectively. Increased global demand for acetate tow led to sequential volumes and price increases.

Industrial Specialties: Net sales increased 1.4% from the previous quarter to $299 million. Adjusted EBIT increased 31.6% sequentially to $25 million due to higher EVA polymers volumes sold in North America and Asia. Volumes increased 3%, while price decreased 3% due to lower raw material costs. The segment also benefitted from focused spending initiatives.

Acetyl Intermediates: The segment’s sales declined 1.7% from the previous quarter and came in at $795 million. Adjusted EBIT increased 9% sequentially to $72 million owing to less turnaround activity than in the prior quarter. Prices declined 1% due to lower raw materials costs and volumes also decreased 1%.

Liquidity

Cash and cash equivalents were $1,100 million as of Sep 30, 2013, versus $959 million as of Dec 31, 2012. The company’s long-term debt stood at $2,870 million as of Sep 30, 2013, compared with $2,930 million as of Dec 31, 2012. Celanese generated $232 million in cash from operating activities in the reported quarter on the back of strong earnings.

Dividend

Celanese has increased the company’s quarterly common stock dividend by 100%, effective Jul 25, 2013. On a quarterly basis, the dividend increased from 9 cents to 18 cents per share. On annual basis, it increased to 72 cents per share from 36 cents per share.

Memorandum of Understanding

Celanese and PetroChina have signed a Memorandum of Understanding (MoU) to advance the development of synthetic fuel ethanol opportunities in China. Celanese’s proprietary TCX ethanol process technology will be put to use for the development. Celanese will leverage PetroChina’s position as the largest oil and gas producer and distributor in China to explore the growing Chinese fuel ethanol market and would work along with stakeholders in the country to showcase the benefits of its TCX technology.

Outlook

For 2014, Celanese expects earnings growth on the back of company-specific initiatives to be consistent with its long-term growth plan. The company-specific initiatives including innovation of new products and enhancement of efficiencies through productivity are expected to drive earnings growth in 2014.

Celanese currently carries a Zacks Rank #4 (Sell).

Other companies in the chemical industry worth considering are Akzo Nobel NV (AKZOY), Air Products & Chemicals Inc. (APD) and BASF SE (BASFY). All of them hold a Zacks Rank #2 (Buy).