LyondellBasell Industries LYB is set to release its fourth-quarter 2015 results ahead of the bell on Feb 2.
Last quarter, the Netherlands-based chemical giant delivered a 9.8% positive earnings surprise. However, its revenues fell by double-digits year over year and missed expectations. Sales were affected by lower prices of the company’s products.
LyondellBasell has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 16.33%. Is the company poised for another winning quarter?
Let’s see how things are shaping up for this announcement.
Factors to Consider
LyondellBasell, in its third-quarter call, said that it sees typical seasonality to unfavorably impact the earnings of its oxyfuels, polyolefins and refining businesses in the fourth quarter.
LyondellBasell continues to benefit from the favorable North American natural gas environment. It is also expected to gain from its ethylene and polyethylene expansions.
The company is executing its expansion projects to leverage the U.S. natural gas liquids (NGLs) advantage. It remains on track with its multi-plant ethylene expansion programs across Channelview, La Porte and Corpus Christi facilities in Texas which benefit from shale gas production.
The company has already completed an 800-million pound per year expansion at its La Porte site and a 250-million pound per year expansion at the Channelview facility. Further, the addition of 800 million pounds of capacity at the Corpus Christi plant is anticipated to be completed by second-quarter 2016.
LyondellBasell is further advancing plans to construct a world-scale plant on the U.S. Gulf Coast for producing propylene oxide (“PO”) and tertiary butyl alcohol (“TBA”), leveraging the shale gas boom in the region.
However, LyondellBasell is exposed to volatility in raw material and energy costs that account for a major portion of its operating costs. It continues to face headwinds from a weak crude oil price environment. Lower oil prices may hurt its U.S. ethylene margins in 2015, thereby affecting its profitability.
Moreover, the company’s operations are subject to maintenance outages. Turnaround related to Corpus Christi expansion and maintenance outages across certain plants are expected to impact results in the fourth quarter.
Earnings Whispers
Our proven model does not conclusively show that LyondellBasell is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for LyondellBasell is +0.95%. This is because the Most Accurate estimate stands at $2.13, while the Zacks Consensus Estimate is pegged at $2.11.
Zacks Rank: LyondellBasell’s Zacks Rank #4 (Sell), when combined with a positive ESP, makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks That Warrant a Look
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Pan American Silver Corp. PAAS has an Earnings ESP of +22.22% and a Zacks Rank #2 (Buy).
Agrium Inc. AGU has an Earnings ESP of +4.86% and a Zacks Rank #3 (Hold).
Franco-Nevada Corp. FNV has an Earnings ESP of +8.33% and a Zacks Rank #3.
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