We are reaffirming our Neutral recommendation on Celanese Corporation (CE - Analyst Report) following its mixed second-quarter 2012 results.
Adjusted earnings of $1.47 per share topped the Zacks Consensus Estimate of $1.40. But sales fell 4% year over year to $1,675 million, missing the Zacks Consensus Estimate.
Revenues were hit by a soft European economy, sluggish growth in Asia and weak pricing in the acetyl intermediates business.
Celanese expects the challenging economic conditions to continue in Europe for the remainder of 2012, while growth rates in Asia will be steady. The company sees adjusted earnings per share in the second half to be modestly below the first half of 2012.
Celanese is among the world’s largest producers of acetyl products as well as the leading global producer of high-performance engineered polymers. It competes with BASF SE (BASFY - Snapshot Report), Methanex Corp. (MEOH - Analyst Report) and E. I. Du Pont de Nemours & Co. (DD - Analyst Report).
Celanese plans to cut costs and run its plants better to counter weak demand. The company’s strong presence in emerging markets will enable it to deliver incremental earnings in 2012. Moreover, the company continues to generate strong cash flows and remains focused on returning value to its shareholders.
Celanese continues to accelerate growth in the emerging markets, including Asia. Its expansion initiatives in China are expected to support earnings growth. The company’s integrated chemical complex in Nanjing, China, serves as a base for expansion in Asia, supporting the region's increasing demand.
Celanese recently entered into an agreement with Pertamina, the state-owned energy company of Indonesia, for the development of fuel ethanol projects. Under the alliance, the company will work with Pertamina to meet Indonesia’s growing need for liquid transportation fuel for the development of new energy sources.
However, Celanese is witnessing weak acetyl demand in China and Europe. The company is also seeing softness in some of the advanced interim market segments due to weak automobile builds in Europe.
Moreover, Celanese is exposed to volatility in raw material costs, currency headwinds and intense competition. The company’s balance sheet leverage is also relatively high, limiting its financial flexibility.
Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).