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Celanese (CE) Earnings Beat, Revenues Miss Estimates in Q3

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Celanese Corporation (CE - Free Report) recorded earnings from continuing operations of $3.00 per share for the third quarter of 2018, showing an around 79% rise from $1.68 a year ago.

Barring one-time items, earnings were $2.96 a share, reflecting a roughly 53% surge from $1.93 posted a year ago. It surpassed the Zacks Consensus Estimate of $2.75.

Revenues of $1,771 million rose roughly 13% year over year but lagged the Zacks Consensus Estimate of $1,817 million.

The chemical maker benefited from gains in its Engineered Materials (EM) and Acetyl Chain units in the quarter. Higher pricing across these businesses also supported the results.

Celanese Corporation Price, Consensus and EPS Surprise

 

Segment Review

Sales at the EM unit jumped 12% year over year to $642 million in the quarter. Segment income went up around 19% year over year to $187 million. Increased pricing and volume growth in Asia and the Americas, better product mix, recent acquisitions and project commercializations contributed to the division’s earnings. The company commercialized 925 projects in EM during the quarter, up 58% year over year. The company initiated 2,000 projects in the quarter and is on track to deliver more than 3,000 project wins in 2018.
 
Celanese saw lower pricing in the quarter at its Acetate Tow segment due to reduced industry capacity utilization, partly masked by mix and productivity gains. Segment income was $65 million, down 5.8% year over year.

The Acetyl Chain segment saw net sales of $1 billion in the quarter, up around 17% year over year. Segment income was $277 million, up around 76.4% year over year. The division gained from an improved supply and demand fundamentals, performance of the Acetyl Chain operating model as well as higher pricing and manufacturing activations in the quarter.

Financials

Celanese ended the quarter with cash and cash equivalents of $703 million, up around 52.4% year over year. Long-term debt was up 8.2% year over year to $3,196 million.

Celanese generated operating cash flow of $467 million and free cash flow of $382 million in the quarter. Capital expenditure in the quarter totaled $79 million. Moreover, the company returned $223 million to shareholders through dividends and share repurchases.

Outlook

Celanese raised its adjusted earnings per share guidance for 2018 to roughly $10.90-$11.10 factoring in strength in its EM and Acetyl Chain units. The company expects the momentum in Acetyl Chain and EM to continue in the rest of 2018. EM segment is expected to keep the pace of earnings growth with traction from new projects and bolt-on acquisitions. Moreover, the company expects to deliver free cash flow of nearly $1.2 billion in 2018. The company is also executing its three-year strategic plan.

Zacks Rank & Stocks to Consider

Celanese is a Zacks Rank #3 (Hold) stock.

A few better-ranked companies in the basic materials space are Methanex Corporation (MEOH - Free Report) , CF Industries Holdings, Inc. (CF - Free Report) and KMG Chemicals, Inc. , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Methanex has an expected long-term earnings growth rate of 15%. The company’s shares have rallied 44.2% in the past year.
 
CF Industries has an expected long-term earnings growth rate of 6%. Its shares have rallied 39.5% in a year’s time.

KMG Chemicals has an expected long-term earnings growth rate of 28.5%. The company’s stock has risen 35.3% in the past year.

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