Mixed Bag from Celanese in 2Q

Specialty materials company Celanese Corporation ( CE - Analyst Report ) reported second-quarter 2012 adjusted earnings (excluding one-time charges) of $1.47 per share, down from $1.66 a year ago. This marked the second highest quarterly adjusted earnings in the company’s history.

The results exceeded the Zacks Consensus Estimate of $1.40. Profit, as reported, rose 3.4% year over year to $210 million (or $1.31 per share).

Revenues and Margins

Sales for the quarter were $1,675 million, down 4% year over year, missing the Zacks Consensus Estimate of $1,765 million. The decline was due to lower pricing in the company’s acetyl intermediates business, a weakened European economy and slower growth in Asia.

Segment Review

Advanced Engineered Materials: Sales decreased 6.6% year over year to $323 million in the second quarter, due to lower volumes resulting from weak demand from industrial goods and electronics as well as unfavorable currency, partly offset by 2% rise in prices. Operating EBITDA rose 6.5% to $114 million due to higher prices and increased equity earnings.

Consumer Specialties: Sales rose 12.4% year over year to $327 million, driven by a 7% increase in prices and a 6% increase in volumes. Production was hindered during the first quarter of 2012 in the company's Acetate Products business, which led to shift of additional volume in the second quarter.

Operating EBITDA rose 14.3% to $168 million on improved volumes and expanded margins. The results also included increased dividends from the company's acetate China ventures which totaled $83 million, a 6.4% year over year increase.

Industrial Specialties: Net sales decreased marginally from the year ago quarter to $327 million. Volumes increased 5% in North America and Asia, but were offset by unfavorable currency translation, primarily the euro.Operating EBITDA increased 17.5% to $47 million due to higher volumes and low raw material costs.

Acetyl Intermediates: The segment witnessed a 10.2% decline in sales to $821 milliondue to lower acetyl pricing. The segment was impacted byweak economic conditions in Europe and slow growth in Asia, which affected demand and pricing. Operating EBITDA decreased 44.1% to $99 million due lower pricing.

Liquidity

Cash and cash equivalents were $800 million as of June 30, 2012, versus $682 million as of December 31, 2011. The company’s long-term debt stood at $2,845 million as of June 30, 2012, compared with $2,873 million as of December 31, 2011. Net debt at the end of the second quarter was $2,176 million, a $159 million decrease from the end of 2011.

Outlook

Celanese expect the challenging economic conditions to prevail in Europe and the current growth rates in Asia to continue for the rest of 2012. As such, the company expects earnings per share in the second half of 2012 to be slightly below the first half of the year.

Celanese, which competes with BASF SE ( BASFY ) and Methanex Corporation ( MEOH - Analyst Report ) , currently retains a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating. We have a long-term (more than 6 months) Neutral recommendation on the stock.