Celanese Beats Zacks Estimate

Celanese Corporation (CE - Analyst Report), a leading global chemical company, reported net earnings of 58 cents per share in the third quarter of 2009, beating the Zacks Consensus Estimate of 42 cents. Results, however, were lower than last year’s 78 cents.

Weak pricing and lower volumes, especially for Acetyl Intermediates and Industrial Specialties products on weak global demand led to net sales of $1.3 billion in the quarter, down 28% from the same period last year. The Acetyl Intermediates segment primarily serves customers in the chemical, paint and adhesives industries.

Consumer Specialties: Net sales slid 8% to $271 million in the quarter, driven by lower sales volumes primarily in North America and Europe and negative currency impacts. However, higher pricing, lower raw material and energy costs and benefits from the company’s fixed cost reduction efforts drove a 24% rise in operating profit to $52 million. Consumer Specialties continued to deliver strong performance as higher pricing and Acetate Products venture growth in China -- as well as lower overall costs -- offset modest volume declines resulting from softer product demand.

Advanced Engineered Materials: Significantly lower volumes in many of its end-use industries continued to impact year-over-year performance in the segment. Net sales decreased 19% to $220 million in the quarter, primarily driven by lower volumes in the U.S. and European automotive markets, as well as other consumer and durable goods segments. Operating profits improved 61% to $21 million on lower raw material and energy costs.

Industrial Specialties: Net sales of $236 million reflected a 38% year over year decline driven by lower volumes associated with softer demand for PVOH. The decrease in net sales was also attributed to lower pricing and the negative impacts of currency. However, volumes increased sequentially on improved demand in North America, Europe and Asia, particularly in the company’s emulsions business. Operating profit more than doubled to $44 million compared with $18 million in the same period last year. Margins expanded in the core businesses, following lower raw material costs and the benefits of the company’s fixed spending reduction efforts.

Acetyl Intermediates: Net sales declined 37% to $666 million in the quarter compared with $1,067 million in the same period last year, primarily due to lower pricing and modestly lower volumes. Lower year-over-year industry utilization rates caused by reduced global demand, coupled with lower raw material costs, drove the pricing decline. The company’s operating rates for its acetic acid facilities remained at high levels during the quarter; however, volumes in vinyl acetate monomer and other derivative products were lower, reflecting the reduced demand.

Industry demand in Asia has continued to increase sequentially from its lowest levels in the fourth quarter of 2008. Demand in Europe and the Americas remained weak in comparison, but showed modest improvement during the same period.

Cash and cash equivalents at the end of the quarter were $1.3 billion compared with $548 million at the end of the third quarter of 2008. In 2009, the company received net cash of $168 million from the sale of the PVOH business and an advance payment of $412 million related to the relocation of Ticona’s business in Kelsterbach, Germany. Celanese reduced its net debt at the end of the reported quarter to $2.3 billion from $3 billion last year. However, debt to capital ratio of above 80% is our major concern.

Going forward, Celanese plans to reduce fixed spending by $100 million in 2010, as it streamlines manufacturing operations and administrative functions, including the closure of its facility in Pardies, France. The company also expects volumes to increase across all of its businesses and an adjusted tax rate of below 20%. Celanese expects these changes to add $1 to earnings per share next year.