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Celanese to Shut Down Mexico Facility to Reduce Fixed Costs

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Celanese Corporation (CE - Free Report) recently announced further consolidation of production operations of its global acetate manufacturing operations by shutting the production facility in Ocotlan, Jalisco, Mexico. The move is aimed to strengthen the company’s competitive position, align production capacities with expected industry demand and reduce fixed costs.  

In June 2018, the company stated that it will cease the production of acetate tow at the Ocotlan facility. Now, Celanese will also discontinue production of acetate flake at the facility, essentially shutting all production operations at the site by Oct 31, 2019.

Per management, manufacturers in China are undertaking plans to boost acetate flake capacity in 2020. As such, the demand for imported flake is likely to decline considerably. This along with the company’s ability to source additional volumes from the Narrows, VA site, supports the decision of completely shutting operations at the Ocotlan facility. Moreover, the decision enables the company to optimize cost and footprint, which are part of the long-term strategy for acetate business for maintaining competitive position in the market.

Notably, the company has undertaken steps to strengthen competitive position in the acetate tow market. Initiatives like reducing fixed costs, lowering raw materials cost and aligning with demand trends have enabled the company to achieve the same.  

Celanese’s shares have lost 3.2% in the past year, against the industry’s 9.8% rise.

In April 2019, the company backed adjusted earnings per share guidance of roughly $10.50 for 2019, considering that underlying fundamentals will improve later in the year.

The company does not expect improvement in demand in the second quarter. It anticipates second-quarter performance to be similar to first-quarter levels. Celanese will continue to invest in its businesses and further expand capability to boost growth and shareholders’ value.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the basic materials space are Materion Corporation (MTRN - Free Report) , Flexible Solutions International Inc. (FSI - Free Report) and Fortescue Metals Group Ltd. (FSUGY - Free Report) . These stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Materion has an expected earnings growth rate of 27.3% for 2019. The company’s shares have gained 22.5% in the past year.

Flexible Solutions has projected earnings growth rate of 342.9% for the current year. The company’s shares have surged 170.7% in a year’s time.

Fortescue Metals has an estimated earnings growth rate of 230.4% for the current year. Its shares have rallied 98.4% in the past year.

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