Chemical and advanced materials maker Celanese Corporation’s (CE) first-quarter 2014 adjusted earnings (excluding one-time items) of $1.33 per share were up 16.7% from $1.14 per share reported in the year-ago quarter. The result beat the Zacks Consensus Estimate of $1.21 per share.
Profit from continued operations (as reported) came in at $1.25 per share in the first quarter, surging roughly 42% from 88 cents per share posted in the prior-year quarter.
Sales in the quarter were $1,705 million, up 6.2% year over year, surpassing the Zacks Consensus Estimate of $1,682 million.
Segment Review
Advanced Engineered Materials: The segment’s adjusted earnings before interest and taxes (EBIT) increased 50% sequentially and the income margin increased 530 basis points (bps) on a sequential basis to 22.5%, in the quarter. The improved results were driven by the ability of the engineered materials business to develop products and applications that are tailored per customers' requirements.
Volumes rose 12% sequentially due to healthy seasonal demand and increasing requirement for advanced polymers in autos. However, improved results in the engineered materials business more than offset lower-than-expected earnings from affiliates and higher energy costs. Operating profit excluding affiliate earnings came in at $57 million in the quarter.
Consumer Specialties: The segment’s adjusted EBIT increased 14.4% from the previous quarter to $127 million on productivity efforts in the Cellulose Derivatives business. Pricing increased 2% sequentially.
Higher pricing of acetate tow in the quarter was partly offset by commitments under a legacy contract in acetate flake. Dividends from the cellulose derivatives ventures rose $5 million from the previous quarter. Operating profit excluding dividends from cellulose derivatives ventures came in at $99 million in the quarter.
Industrial Specialties: Adjusted EBIT increased 54% sequentially to $20 million and income margin increased 160 bps. Volumes increased 13% sequentially on the back of improved demand for proprietary products in paints and coatings (emulsion polymers) in Europe and Asia. The higher volumes in emulsion polymers more than offset higher raw material costs.
Operating profit came in at $20 million in the quarter. Pricing increased 1% in North America and Asia in the Ethylene Vinyl Acetate (EVA) polymers business due to higher raw material costs in the first quarter.
Acetyl Intermediates: Adjusted EBIT increased 14.3% sequentially to $96 million. Income margin increased 130 bps sequentially to 11.4%. Higher pricing and strategic actions, including the closure of two non-integrated facilities in Europe, more than offset higher raw material and energy costs as well as a 3% percent dip in volumes. Pricing increased 5% due to downstream derivative products reflecting tightness in Vinyl acetate monomer (VAM) in the first quarter. Operating profit came in at $98 million in the quarter.
Liquidity
Cash and cash equivalents were $998 million as of Mar 31, 2014, up 2% from $978 million as of Mar 31, 2013. The company’s long-term debt stood at $2,881 million as of Mar 31, 2014, down 2.6% from $2,959 million as of Mar 31, 2013. Celanese generated $164 million in cash from operating activities in the reported quarter on the back of strong earnings.
Celanese deployed $53 million of cash on share repurchases during the first quarter and as of Mar 31, 2014, the company had $347 million remaining under its existing repurchase authorization.
Outlook
For 2014, Celanese expects earnings growth of 12% to 14% on the back of company-specific initiatives including innovation and productivity programs consistent with its long-term growth plan. These initiatives are expected to drive earnings growth in 2014.
Celanese currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the chemical industry include Cabot Corporation (CBT), Methanex Corp. (MEOH) and Huntsman Corporation (HUN). While Cabot carries a Zacks Rank #1 (Strong Buy), Methanex and Huntsman retain a Zacks Rank #2 (Buy).
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