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Why Is Celanese (CE) Down 14.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Celanese (CE - Free Report) . Shares have lost about 14.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Celanese due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Celanese’s Earnings and Revenues Lag Estimates in Q4

Celanese logged earnings from continuing operations of 35 cents per share in fourth-quarter 2019, down from 73 cents in the year-ago quarter.

Barring one-time items, adjusted earnings were $1.99 a share, down from $2.38 in the year-ago quarter. It also lagged the Zacks Consensus Estimate of $2.09.

Revenues of $1,432 million fell 15.2% year over year and missed the Zacks Consensus Estimate of $1,501.8 million. The company witnessed demand weakness during the reported quarter.

Segment Review

Net sales in the Engineered Materials unit were $539 million in the quarter, down 13.3% year over year. Sales were hurt by lower volumes, prices and unfavorable currency impact. Volumes were impacted due to high seasonality in the Western Hemisphere, soft demand for products used in the manufacturing of capital goods and slower-than-expected ramp up, following the resolution of the autoworkers’ strike of General Motors.

The Acetyl Chain segment posted net sales of $771 million, down 17.7% year over year. Sales were mainly affected by normal winter seasonality as well as the impact of the outage at the Clear Lake facility in Texas.

Net sales in the Acetate Tow segment were $148 million, down 8.1% year over year. Prices were stable year over year in the quarter.

Notably, during the reported quarter, Acetate Tow finalized the shutdown of its production facility at Ocotlan, Mexico, contributing additional savings to aid stable earnings performance in 2020.

2019 Highlights

For 2019, revenues declined 12% year over year to $6,297 million. Adjusted earnings declined 13.4% year over year to $9.53 per share for 2019.

Financials

Celanese ended 2019 with cash and cash equivalents of $463 million, up 5.5% year over year. Long-term debt was up 14.8% year over year to $3,409 million.

Celanese generated operating cash flow of $326 million and free cash flow of $179 million in the quarter. Capital expenditure was $144 million for the quarter. Moreover, the company completed $225 million in share repurchases during the reported quarter.

Outlook

Celanese does not expect any meaningful improvement in demand conditions on a year-over-year basis in 2020. Moreover, the company expects to reach 2020 adjusted earnings target of $11 per share, driven by factors within its control.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.49% due to these changes.

VGM Scores

Currently, Celanese has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Celanese has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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