We issued an updated research report on Celanese Corporation (CE - Free Report) on Oct 1.
Celanese, in July, raised its adjusted earnings per share guidance for 2018 to roughly $10.50-$10.75 factoring in strength across its Engineered Materials (EM) and Acetyl Chain units. The company expects the momentum in Acetyl Chain to continue into the third quarter.
Celanese, which is among the prominent chemical companies along with Eastman Chemical Company (EMN - Free Report) , PPG Industries, Inc. (PPG - Free Report) and Air Products and Chemicals, Inc. (APD - Free Report) , remains focused on growth through acquisitions.
The purchase of Italy-based SO.F.TER. Group strengthened Celanese’s solutions capability and project pipeline. Moreover, the acquisition of Nilit's nylon compounding unit is in sync with Celanese’s plans to become a leading nylon compound supplier. The buyout enables the company to extend global leadership position in the EM business as nylon continues to be adopted in automotive, consumer and industrial applications.
The acquisition of Omni Plastics L.L.C. and its subsidiaries has also strengthened Celanese’s global asset base by adding compounding capacity in the Americas, which will allow the company to continue supporting a diverse and growing customer base.
Moreover, the company’s strategic measures including cost savings through productivity actions and efficiency enhancement are expected to continue to drive its earnings. Its bottom line is expected to be driven by productivity actions, price hike initiatives and operational improvement. Celanese expects to achieve productivity savings of $40-$50 million by 2020.
Project commercializations are also contributing to the earnings in the EM segment. Celanese commercialized 733 projects in the EM segment during the second quarter, up 34% year over year, and is on track to deliver nearly 3,000 project wins in 2018.
Celanese also continues to generate strong cash flows and remains focused on returning value to its shareholders. The company generated record free cash flow of $500 million and returned $173 million to shareholders through dividends and share repurchases in the second quarter. Celanese expects to deliver free cash flow of more than $1 billion in 2018.
However, Celanese is witnessing lower volume and pricing in its Acetate Tow segment. Subdued utilization rates across the tow industry are affecting the prices of acetate tow. Celanese envisions Acetate Tow earnings to remain relatively flat year over year in 2018. The company is also exposed to headwind from raw material cost inflation.
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