On Jun 27, we issued an updated research report on Netherlands-based chemical giant, LyondellBasell Industries LYB.
LyondellBasell’s adjusted earnings for first-quarter 2016 topped the Zacks Consensus Estimate. However, revenues fell by double digits year over year on declines across all businesses and missed expectations.
The company, in its first-quarter call, said that a significant amount of industry capacity will be offline across the U.S. and Asia for scheduled maintenance in the second quarter, which will tighten global olefin and polyolefin markets.
LyondellBasell continues to benefit from the favorable North American natural gas environment. It should also 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.
LyondellBasell has already completed an 800-million pound per year expansion at its La Porte site and a 250-million pounds per year expansion at the Channelview facility. The addition of 800 million pounds of capacity at its Corpus Christi plant is expected to complete by third-quarter 2016.
Moreover, LyondellBasell is 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. The new PO/TBA facility, considered to be the largest of its kind, will be built in the Houston area.
LyondellBasell also remains committed to deliver greater value to its shareholders leveraging healthy cash flows. The company’s supervisory board, last month, approved a 9% rise in its interim dividend to 85 cents per share ($3.40 per share on an annualized basis). Separately, the company’s shareholders approved a new share buyback program, authorizing it to buyback up to 10% of its shares.
However, the low oil price environment remains a headwind for the company. Depressed oil prices may continue to hurt its U.S. ethylene margins, thereby affecting its profitability.
Moreover, LyondellBasell’s operations are subject to maintenance outages. Planned maintenance at a refinery and turnarounds across the company’s olefins cracker in France and Corpus Christi plant impacted results in the first quarter. Maintenance turnarounds are expected to impact second-quarter results by roughly $20 million to $30 million while a repair at the refinery is expected to affect the quarter’s results by an additional $40 million to $70 million.
LyondellBasell is also exposed to macroeconomic uncertainties and volatility across end-use markets it serves. In addition, the company faces pricing pressure as it operates in highly competitive markets.
LyondellBasell is a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked companies in the diversified chemical space include Albemarle Corporation ALB, Innospec Inc. IOSP and Asahi Kasei Corporation AHKSY, all sporting a Zacks Rank #1 (Strong Buy).
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