Methanex Corporation (MEOH - Analyst Report) posted earnings of 56 cents per share in the second quarter of 2013, up 12% from earnings of 50 cents per share recorded in the year-ago quarter.
Barring one-time items other than stock-option expenses, the company’s net earnings of 94 cents per share missed the Zacks Consensus Estimate of 95 cents.
Methanex’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) amounted to $157 million in the quarter, a year over year jump of 39%. Higher methanol pricing contributed to the increase
Revenues increased roughly 19% year over year to $733 million and exceeded the Zacks Consensus Estimate of $717 million. Sales volumes in the quarter totaled 2,012,000 tons, up 9% from the year-ago quarter.
Average realized price per ton amounted to $425 in the quarter compared with $384 a year ago. Total production in the quarter was 1,035,000 tons compared with 1,034,000 tons in the prior-year quarter. Methanex-produced methanol sales volume was 1,021,000 tons versus 1,001,000 tons a year ago.
Chile: Methanex produced 12,000 tons in Chile in the reported quarter, compared with 82,000 tons in the prior-year quarter. Methanex produced an additional 18,000 tons under another natural gas receiving arrangement from Argentina in the quarter.
The gas supply outlook in Chile and Argentina are challenging as a result of which Methanex idled its Chile operations in Apr 2013. Methanex is continuing to work with Empresa Nacional del Petroleo (ENAP) and others to secure sufficient natural gas to sustain its operations.
The availability of natural gas supplies from Chile and Argentina, level of exploration and development in southern Chile are instrumental in determining the future of Chile operations.
New Zealand: Methanex produced 361,000 tons in the quarter, much higher than 210,000 tons produced in the same period last year. During the quarter, the company contracted additional natural gas in New Zealand and produced about 600,000 tons of methanol.
Methanex is planning to restart its Waitara Valley plant and de-bottlenecking the Motunui facilities, which could produce to the site’s full capacity of 2.4 million tons annually by the end of 2013.
Trinidad: Methanex owns two facilities in Trinidad. The company’s fully-owned Titan facility produced 169,000 tons in the second quarter, lower than 196,000 tons produced in the year-ago quarter, mainly due to unplanned outages.
The Atlas facility, in which the company holds a 63.1% interest, produced 201,000 tons in the quarter, lower than 264,000 tons produced last year. Methanex is facing natural gas supply restrictions in Trinidad. Although it is trying to find a solution to this problem, Methanex expects to experience natural gas curtailments in the near term.
Egypt: The facility produced 163,000 tons in the quarter, down from 164,000 tons produced a year ago. The decline in production was a result of natural gas supply restrictions.
The company faced periodic natural gas shortages in this region, which are expected to persist in the future due to increased electricity demand during the summer.
Medicine Hat: The facility produced 129,000 tons in the quarter, up from 118,000 tons produced last year owing to the age of its catalyst and the composition of the natural gas feedstock. Methanex is currently de-bottlenecking the facility to add another 90,000 tons of annual production capacity to Medicine Hat operation by the end of the third quarter of 2013.
Consolidated cash flows from operating activities decreased 10.7% to $125 million in the second quarter from $140 million in the prior-year quarter. Methanex ended the quarter with a strong liquidity position with cash and cash equivalents of $708.5 million, up 13.7% year over year. Long-term debt, as of Jun 30, 2013, was $1,146.1 million compared with $873.6 million, as of Jun, 30, 2012.
Methanex expects the methanol industry and methanol pricing environment to be stable in the short term.
Methanex stated that methanol price will depend on a number of factors such as economic health, operating rates, global energy prices and demand. Methanex believes that its healthy financial position, strong global supply network and competitive-cost position will strengthen its position as the global leader in the methanol industry and enable it to continue to deliver incremental returns to shareholders.
Methanex further expects to start a 0.7 million ton plant in Azerbaijan and restart a 0.8 million ton plant in Channelview, Texas., in 2013. Methanex will also be relocating two idle facilities presently in Chile to Geismar, La., with the first 1 million ton facility expected to start by the end of 2014 and the second 1 million ton facility expected to start in early 2016. The company expects that its projects will expand its annual operating capacity by approximately three million tons over the next three years, representing a 60% capacity increase.
With the continued initiatives to increase production in Medicine Hat and New Zealand and progress in the Louisiana project, the company has the potential to increase its operating capacity and pursue other strategic growth opportunities over the next few years, which in turn, will contribute to cash generation and increased supply to customers. The projects are expected to add up to one million ton of annual production capacity by the end of 2013.
Methanex currently retains a Zacks Rank #3 (Hold).
Other companies in the chemical space that are worth considering include PPG Industries Inc. (PPG - Analyst Report), Cytec Industries Inc. (CYT - Snapshot Report) and Cabot Corporation (CBT - Snapshot Report). All of them retain a Zacks Rank #2 (Buy).