Celanese (CE) Q2 Earnings Top, Profit Shoots Higher

Chemical and advanced materials maker Celanese Corporation (CE) saw its profit jump in second-quarter 2014 on higher margins across its Advanced Engineered Materials, Industrial Specialties and Acetyl Intermediates segments.

Profit from continuing operations (as reported) soared 94% year over year to $258 million or $1.66 per share in the quarter from $133 million or 83 cents per share posted in the prior-year quarter.

Adjusted earnings (excluding one-time items) of $1.47 per share jumped 31% from $1.12 per share reported in the year-ago quarter. It also outstripped the Zacks Consensus Estimate of $1.23.

Revenues and Margins

Sales rose 7% year over year to $1,769 million in the quarter, coming ahead of the Zacks Consensus Estimate of $1,723 million.

Consolidated segment income margin rose to 18.6% from roughly 16% a year ago, boosted by the company’s continued efforts to deliver customer centric-applications and strategic actions to leverage current industry trends.

Segment Review

Advanced Engineered Materials: The segment’s income margin increased 170 basis points (bps) on a sequential basis to 24.2% in the quarter on record sales of $389 million. The results were driven by the ability of the division to develop products and applications that are tailored per customers' requirements. Volumes rose 4% sequentially on strong demand of advanced polymers in autos. Reported operating profit came in at $56 million in the quarter.

Consumer Specialties: Income margin was 37% in the reported quarter on income of $107 million. The division’s income fell sequentially, impacted by interruptions in plant operations at Celanese’s cellulose derivatives facility in Virginia due to power outage. Volumes fell 3% sequentially while pricing declined by less than 1%. Segment operating profit was $80 million.

Industrial Specialties: Income margin rose 20 bps sequentially on income of $22 million. Volumes went up 2% sequentially, helped by improved demand for Ethylene Vinyl Acetate (EVA) polymers in North America. Pricing rose 4% sequentially in response to increased raw material costs as well as better product mix in EVA polymers. Operating profit came in at $24 million in the quarter.

Acetyl Intermediates: Income margin increased 480 bps sequentially to 16.2% on income of $146 million. The results were driven by higher pricing and strategic actions by the company. Pricing increased 6%, partly due to the company’s strategic measures at the non-integrated facilities in Europe. Operating profit came in at $143 million in the quarter.

Financials

Celanese exited the quarter with cash and cash equivalents were $1,064 million, down 4% year over year. The company’s long-term debt was $2,880 million, essentially flat year over year. Celanese generated operating cash flows of $253 million in the reported quarter on the back of strong earnings.

Celanese deployed $39 million of cash on dividends and $50 million on share repurchases during the quarter and had $297 million remaining under its existing repurchase authorization as of Jun 30, 2014.

Celanese, during the quarter, raised its quarterly dividend by 39% to 25 cents per share from the prior payout of 18 cents a share.

Outlook

Based on its strong first-half performance, Celanese now expects adjusted earnings growth of 15% to 17% for 2014, versus 12% to 14% expected earlier. It said that it will focus more on company-specific initiatives for 2015 (including innovation and productivity programs) which will help it offset expected headwind associated with the expiry of a methanol contract in mid-2015.

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

Some better-ranked stocks in the chemical space are Marrone Bio Innovations, Inc. (MBII), Ashland Inc. (ASH) and LyondellBasell Industries NV (LYB). While Marrone Bio Innovations sports a Zacks Rank #1 (Strong Buy), Ashland and LyondellBasell carry a Zacks Rank #2 (Buy).