Specialty material company Celanese Corp. (NYSE:CE) reported adjusted earnings of $1.66 per share in the second quarter of 2011, beating the Zacks Consensus Estimate of $1.41.
Diluted earnings per share in the quarter were $1.29 per share, up 48% year over year.
Revenues and Margins
Quarterly revenues grew 16% year over year to $1.75 billion, primarily driven by higher volumes across all business segments and favorable currency impacts. Results were above the Zacks Consensus Estimate of $1.39 billion. Operating profit jumped to $209 million compared with $156 million in the prior-year quarter.
Advanced Engineered Materials: Net sales jumped 22.7% year over year to $346 million, driven by higher pricing, primarily related to improved product mix and increased value-in-use pricing, favorable currency impacts and revenue related to the company’s recent acquisition. While all engineered polymers experienced strong demand, volumes for polyacetal products (POM) were temporarily constrained as the company continued to build inventory for its planned European capacity expansion.
Operating profit of $27 million in the second quarter of 2011 was below $40 million in the year-ago period as the profit contribution from higher volumes and pricing were offset by increased raw material costs, as well as investments for future growth. The second-quarter 2011 results included other charges and adjustments of $22 million for expense, primarily associated with the European production capacity expansion. Operating EBITDA, which excluded other charges and other adjustments in both periods, was $107 million in the second quarter of 2011, compared with $98 in the prior-year period.
Equity earnings from the company’s affiliates were $39 million, lower than the prior-year quarter as volume growth in the company’s Asian affiliates was offset by higher raw material costs and timing of certain expenses.
Consumer Specialties: This segment delivered sustained earnings, reflecting the company’s leading global positions and strong strategic affiliate performance. Net sales were $291 million, flat year over year as increased pricing and favorable currency offset lower volumes.
Industrial Specialties: For the reported quarter, net sales in the segment were $329 million, up 22.3% from $269 million in the year-ago quarter. The segment benefited from higher pricing and favorable currency impacts. Operating profit was $28 million compared with $16 million in the prior-year quarter as higher volumes, enhanced product mix and increased pricing more than offset higher raw material costs. Operating EBITDA was $40 million compared with $26 million in the prior-year period.
Acetyl Intermediates: Net sales climbed 16.9% to $914 million driven by higher pricing across major acetyl derivative product lines in all regions and favorable currency impacts. Operating profit increased to $152 million from $68 million in the same period last year, driven by the increased pricing and favorable currency impacts, which was more than offset by the higher raw material input costs and lower volumes. Operating EBITDA, which excluded other charges and other adjustments, increased to $177 million in the second quarter of 2011 from $96 million in the same period last year.
Cash and cash equivalents at the end of the second quarter of 2011 were $741 million versus $1,081 million in the same period in 2010. Cash flow provided by operating activities was $316 million for the reported quarter, compared with $219 million in the prior-year period, as higher trade working capital and higher cash taxes offset the improved operating performance. Total debt was $2.9 billion versus $2.5 billion in the prior year.
Senior Unsecured Notes
Celanese successfully completed a public offering of $400 million in aggregate principal amount of senior unsecured notes at 5.875% due 2021. The company used the net proceeds from the offering, plus cash on hand, to retire $516 million of existing senior secured credit facility indebtedness that was set to mature in 2014.
Celanese doubled the capacity of its vinyl acetate ethylene (VAE) unit in Nanjing, China. The expanded unit started production in the second quarter of 2011 and is expected to meet the increased global demand for innovative specialty solutions in vinyl-based emulsions. The company also announced it will nearly double production at its Celstran long-fiber reinforced thermoplastic (LFT) manufacturing unit in Nanjing, China by the end of the fourth quarter of 2011. The unit came online in 2008 with an initial nameplate capacity of 5,000 tons per year.
Celanese’s Polyplastics Co. Ltd. (Polyplastics), one of the company’s strategic equity affiliates, announced a 90,000 ton per year expansion to increase polyacetal production capacity in Malaysia that is expected to be operational in early 2014. The expansion is currently anticipated to be funded locally by Polyplastics.
Celanese also announced plans to accelerate industrial ethanol production in China, six to twelve months earlier than previously expected. In addition to its previously announced plans for one and possibly two greenfield units, the company plans to modify and enhance its existing integrated acetyl facility at the Nanjing Chemical Industrial Park with its TCX™ advanced technology, adding approximately 200,000 tons of ethanol production capacity by mid-2013.
Celanese also broke ground on the previously announced plans for a technology development unit for ethanol production at its facility in Clear Lake, Texas, which is now expected to be commissioned by mid-2012. The company also intends to construct a new research and development facility at the Clear Lake site to continue the advancement of its acetyl and TCX™ technologies.
The company raised its outlook for the full-year 2011, encouraged by the strength of its second-quarter 2011 performance, its confidence in its earnings growth programs, and its expectations for a continued modest global economic recovery. The company now expects 2011 operating EBITDA to be at least $275 million higher than 2010’s results of $1,122 million, and adjusted earnings per share to be at least $1.20 higher than 2010’s results of $3.37, based on a tax rate and diluted share count of 17% and 159.2 million shares, respectively. The company had previously expected 2011 operating EBITDA and adjusted earnings per share to be at least $200 million and $0.85 higher than 2010, respectively.
Celanese is one of the world’s largest producers of acetyl products, as well as a leading global producer of high-performance engineered polymers. The company’s earnings outlook has been improving, driven by the strong performance in the Advanced Engineered Materials business.
The company is operating its facilities in the Acetyl Intermediates segment at above the industry utilization rates of 80%, which provides cost advantages. Capacity utilization has also improved in the Industrial Specialties segment due to rising demand in the Asia Pacific region.
However, Celanese is exposed to volatile raw material (natural gas, ethylene and methanol) prices used in the production of basic chemicals in the Acetyl Intermediates segment, principally formaldehyde, acetic acid and vinyl acetate monomer.
The company also faces stiff competition from larger peers E.I. DuPont de Nemours and Co. (NYSE:DD) and The Dow Chemical Co. (NYSE:DOW) in the Advanced Engineered Material Segment, as well as in the Industrial Specialties segment. Celanese’s balance sheet leverage is also relatively high, which limits its financial flexibility.
|Dahlman Rose & Co.||$60|
| Wednesday, April 27, 2011|
| Monday, April 18, 2011|
|Deutsche Bank Securities||$50|
| Wednesday, February 02, 2011|