Back to top

Analyst Blog

Specialty material company Celanese Corporation (CE - Analyst Report) reported adjusted earnings of 58 cents per share in the fourth quarter of 2011, missing the Zacks Consensus Estimate of 63 cents per share as well as year-ago earnings of 73 cents per share.

For fiscal 2011, adjusted earnings were $4.47 per share versus $3.37 per share in fiscal 2010, exceeding the Zacks Consensus Estimate of $4.46 per share.

Revenues and Margins

Quarterly revenues grew 7% year over year to $1.61 billion, primarily driven by higher pricing across all operating segments. It was above the Zacks Consensus Estimate of $1.60 billion. Operating profit was $97 million compared with $140 million in the prior-year quarter.

For full-year 2011, sales increased 14% to $6.78 billion. Operating profit increased to $690 million from $503 million in 2010.

Segment Review

Advanced Engineered Materials:Net sales increased 6.5% year over year to $292 million, driven by higher pricing and revenues associated with the company's acquired product lines. The quarter, however, witnessed lower volumes due to weak demand in the end markets. The economic environment in Europe remained challenging and the company continued to make innovative efforts to combat it.

The segment posted an operating loss of $3 million in the quarter compared with a profit of $35 million in the prior-year period. The results included $8 million of other charges and other adjustments primarily related to the relocation and expansion of the Kelsterbach facility to Frankfurt Hoechst Industrial Park. Increased net sales offset higher raw material costs in the period. Operating EBITDA, excluding other charges and other adjustments, was $73 million compared with $68 million in the prior-year period.

Equity earnings from the company's affiliates increased by $6 million from the year-ago quarter to $36 million, primarily driven by higher earnings in its Ibn Sina joint venture.

Consumer Specialties:The segment delivered strong results, led by increased demand for its products. However, results were partially offset by higher energy and raw material costs. Net sales were $306 million compared with $281 million in the year-ago quarter driven by higher pricing and volumes in the company's Acetate Products business.

Operating profit was $59 million versus $71 million in the prior-year comparable quarter, as higher pricing offset higher raw material and energy costs. Operating EBITDA was $73 million compared with $80 million in the year-ago quarter.

Industrial Specialties:Net sales in the segment were $272 million, up 9.2% from $249 million in the year-ago quarter. The segment benefited from higher pricing and demand for innovative applications in the emulsions and EVA performance polymers businesses, particularly in the growing Asia region, as well as its growth in North America and Asia, which helped offset softer European demand. Operating profit was $17 million compared with $11 million in the same period last year. Operating EBITDA increased to $30 million from $27 million in the same period last year.

Acetyl Intermediates:The segment was adversely affected by the weak European markets, which resulted in lower demand in the European low-end markets and sharp inventory destocking across the industrial supply chain. Despite this, net sales climbed 6.26% to $849 million driven by high pricing due to recovery in raw materials costs that offset the negative impact from lower volumes.

Operating profit in the quarter decreased to $67 million from $94 million in the prior-year period. Operating EBITDA was $95 million compared with $127 million in the same period last year. The inventory destocking had a negative impact of about $15 million on operating EBITDA in the fourth quarter of 2011.

Liquidity

Cash and cash equivalents were $682 million as of December 31, 2011 versus $740 million as of December 31, 2010. The company generated $638 million in cash from operating activities for full-year 2011, an increase of $186 million from the prior-year period, primarily due to the company's increased earnings.

Outlook

Since the beginning of the first quarter of 2011, Celanese is witnessing increased demand for its products. The company remains optimistic that leading technologies, low cost operations and a strong presence in emerging economies will enable it to deliver increased earnings in 2012. The company also remains on track to meet its 2013 earnings growth objectives of at least $6.00 in adjusted earnings per share.

Celanese is one of the world’s largest producers of acetyl products, as well as a leading global producer of high-performance engineered polymers. 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 BASF SE (BASFY) and Methanex Corporation (MEOH - Analyst Report).

Currently, Celanese has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term (6 months and higher) “Outperform” recommendation.

Please login to Zacks.com or register to post a comment.