Chemical maker Methanex (MEOH) reported profit of $125 million or $1.24 per share in second-quarter 2014, a more than two-fold year over year rise from $54 million or 56 cents per share a year ago.
Barring one-time items other than stock-based compensation expenses, earnings were $1.01 per share, missing the Zacks Consensus Estimates of $1.02. Adjusted earnings fell sequentially in the reported quarter due to lower methanol prices.
Methanex’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $160 million in the quarter, a roughly 1.9% increase from $157 million recorded a year ago and a decline of 37.3% from the first quarter of 2014. The sequential decline in adjusted EBITDA was due to a decrease in average realized price and sales of Methanex-produced methanol in the second quarter.
Revenues rose roughly 8% year over year to $792 million in the reported quarter and declined 18.2% sequentially. Revenues missed the Zacks Consensus Estimate of $822 million.
Average realized price was $450 per ton in the quarter, up 5.9% from $425 per ton a year ago but down from $524 per ton in the first quarter of 2014. Total production was 1,216,000 tons, a 15.6% rise from 1,052,000 tons in the prior-year quarter. Methanex-produced methanol sales volume fell 1.9% year over year to 1,992,000 tons.
Production Summary
New Zealand: Methanex produced 559,000 tons in the quarter, up 54.8% from 361,000 tons produced a year ago. With its three facilities operating at full capacity, the company is capable of producing up to 2.4 million tons a year at the site.
Trinidad: Methanex's fully-owned Titan facility produced 203,000 tons in the quarter, up roughly 20.1% from 169,000 tons produced in the year-ago quarter.
The Atlas facility, in which the company holds a 63.1% interest, produced 191,000 tons, down roughly 5% year over year. The Atlas facility faced ongoing production interruptions due to mechanical problems with the air separation unit.
Methanex is encountering natural gas supply restrictions in Trinidad. Although the company is trying to find a solution to this problem, it continues to experience natural gas curtailments at the site.
Egypt: The facility produced 99,000 tons in the quarter, down 39.3% from 163,000 tons produced a year ago. Production during the reported quarter was impacted by natural gas supply restrictions and the company idled the plant in mid-June due to a lack of natural gas availability. It has also been experiencing periodic natural gas supply restrictions since mid-2012, which is expected to persist in the future due to increased electricity demand during summer months.
Medicine Hat: The facility produced 138,000 tons in the quarter, up 7% from 129,000 tons produced last year.
Chile: Methanex’s Chile operations produced 26,000 tons in the reported quarter, down 10.3% from 29,000 tons a year ago. Methanex expects to idle its Chile operations in early May due to lack of sufficient natural gas feedstock to keep its plant operating through the southern hemisphere winter. The company expects to restart its operations later in 2014. The availability of sustainable natural gas supplies from Chile and Argentina and the level of exploration and development in southern Chile are instrumental in determining the future of the Chile operations.
Geismar, Louisiana: Methanex is progressing with the relocation of two idle Chile facilities to Geismar, LA (Geismar I and Geismar II). The company expects to produce methanol from the 1 million ton Geismar 1 facility in late 2014 and from the 1 million ton Geismar 2 facility in early 2016. During the reported quarter, Methanex’s capital spending related to these projects, barring capitalized interest, was $100 million.
Financials
Consolidated cash flows from operating activities climbed around 92% year over year to $240 million in the reported quarter. Cash and cash equivalents were $647.5 million as of Jun 30, 2014, compared with $708.5 million as of Jun 31, 2013. Long-term debt was $1,106.9 million, down 3.4% year over year.
During the quarter, the company returned over $100 million in cash to shareholders in the form of dividends and share repurchases.
Settlement
In the second quarter, Methanex reached a settlement agreement with Total Austral S.A. of Argentina and received a lump sum payment of $42 million, or $27 million net of tax, to terminate the obligations under its former long-term natural gas supply agreement with Methanex in Chile.
Guidance
Methanex stated that methanol prices were stable entering into the third quarter. It also noted that methanol price will depend on a number of factors such as economic health, operating rates, global energy prices, new supply additions and demand. The company believes that its healthy financial position, financial flexibility, strong global supply network and competitive-cost position will strengthen its stature as the global leader in the methanol industry and enable it to maintain its position and invest in growth initiatives.
Methanex is a Zacks Rank #4 (Sell ) stock.
Other chemical stocks worth considering include LyondellBasell Industries NV (LYB), Marrone Bio Innovations, Inc. (MBII) and Ashland inc. (ASH). While LyondellBasell and Marrone Bio sport Zacks Rank #1 (Strong Buy), Ashland holds a Zacks Rank #2 (Buy).
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