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Celanese (CE) Q3 Earnings Beat Estimates, Sales Miss

DOW CE CBT CC

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Celanese Corporation (CE - Free Report) , a chemical and advanced materials producer, kept its earnings streak alive with a beat in third-quarter 2016. The company reported adjusted earnings of $1.67 per share in the reported quarter, up 11.3% from $1.50 reported a year ago. The figure was above the Zacks Consensus Estimate of $1.61.

Celanese reported sales of $1,323 million for the quarter, missing the Zacks Consensus Estimate of $1,381 million. The top line declined roughly 6.4% year over year.

 

Segment Review

Material Solutions: The unit witnessed higher profitability as strong volume growth offset the impact of reduced affiliate earnings and tow pricings. Advanced Engineered Materials posted a third-quarter record operating profit and delivered the highest ever quarterly adjusted earnings before interest and tax (EBIT).

Operating Margin was 27.3%, compared with 23.6% in the year-ago quarter.

Momentum of the opportunity pipeline continued in the quarter, with the introduction of a record 351 new projects.

Acetyl Chain: The company was able to maintain margins in the quarter by banking on its global presence and integrated network to manage an environment of low raw material pricing and tepid market demand. Acetic acid pricing and derivatives was softer mainly due to weakness in China and lower methanol pricing. Operating Margin for the segment was 14.2%, compared with 8.4% in the year-ago quarter.

CELANESE CP-A Price, Consensus and EPS Surprise

 

CELANESE CP-A Price, Consensus and EPS Surprise | CELANESE CP-A Quote

Financials
 
Cash and cash equivalents were $1,252 million as of Sep 30, 2016, surging 31.5% year over year. Long-term debt was up 15% to $2,923 million as of Sep 30, 2016.
 
Celanese generated operating cash flow of $304 million and free cash flow of $237 million in the quarter, driven by growth in the Materials Solutions core and disciplined working capital management. Capital expenditure in the quarter was $58 million.

During the quarter, the company returned $152 million to its shareholders, including $100 million to buyback 1.5 million shares and $52 million of dividends.

Developments
 
The company has entered into a definitive agreement to fully acquire Forli, Italy based SO.F.TER. Group, which is one of the world's biggest independent thermoplastics compounders. The buyout will nearly double the number of Celanese global engineered materials platforms.

Moreover, Celanese issued €750 million of 1.125% Senior Notes due 2023 and utilized €367 million of the proceeds to repay short term revolver borrowings.

The company also started production at the new vinyl acetate ethylene (VAE) production unit located at its manufacturing facility on Jurong Island, Singapore. The unit will support the rising demand in the Southeast Asia region.

Outlook

Moving ahead, Celanese sees no material changes in the operating environment, which is still impacted by weak economic growth. Utilization rates in the Acetyl Chain remain historically low, mainly in China, and growth in Europe and North America has been moderate. The company will continue to aim at commercial discipline and productivity actions to drive value and anticipates delivering growth in adjusted earnings per share of 8%–10% for full year 2016.

Zacks Rank

Celanese currently carries a Zacks Rank #3 (Hold).

Some better-ranked companies in the chemical space include The Chemours Company (CC - Free Report) and Cabot Corp. (CBT - Free Report) and The Dow Chemical Company (DOW - Free Report) .

Chemours has an expected earnings growth of around 20.3% for the current year. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cabot, currently carries a Zacks Rank #2 (Buy) and has an expected earnings growth of roughly 12.1% for the current year.

Dow has an expected earnings growth of around 2.9% for the current year. The stock carries a Zacks Rank #2.

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