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Why Is Celanese (CE) Up 5.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Celanese (CE - Free Report) . Shares have added about 5.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Celanese due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Celanese's Earnings Top, Sales Trail Estimates in Q3

Celanese logged earnings from continuing operations of $2.17 per share in third-quarter 2019, down from $3.00 in the year-ago quarter.

Barring one-time items, adjusted earnings were $2.53 a share, down from $2.96 in the year-ago quarter. It, however, topped the Zacks Consensus Estimate of $2.50.

Revenues of $1,586 million fell roughly 10% year over year and lagged the Zacks Consensus Estimate of $1,624 million. The company witnessed continued demand weakness during the reported quarter.

Segment Review

Net sales in the Engineered Materials unit were $591 million in the quarter, down 8% year over year. Sales were hurt by lower volumes, prices and unfavorable currency impact. Volumes were impacted by soft global demand. The company commercialized 1,315 projects during the quarter.  It is on track to commercialize more than 4,000 projects in 2019.

The Acetyl Chain segment posted net sales of $867 million, down around 14% year over year. Sales were affected by reduced pricing as well as unfavorable currency impact that more than offset higher volumes.

Net sales in Acetate Tow segment were $158 million, flat year over year. Volumes and prices were stable year over year in the quarter.

Financials

Celanese ended the quarter with cash and cash equivalents of $497 million, down around 29% year over year. Long-term debt was up roughly 5% year over year to $3,359 million.

Celanese generated operating cash flow of $397 million and free cash flow of $315 million during the quarter. Capital expenditure was $82 million for the quarter. Moreover, the company returned $352 million to shareholders through dividends and share repurchases during the reported quarter.

Outlook

Celanese lowered its adjusted earnings per share guidance for 2019, factoring in its expectations that market conditions are not likely to improve this year. The company now sees adjusted earnings in the band of $9.60-$9.80 per share, compared with its prior view of roughly $10.50. The company expects demand weakness to continue through 2019.

The revised earnings guidance also incorporates the fourth-quarter impact of earlier announced unplanned outage at the company’s Clear Lake facility in Texas.

The company also noted that it will remain focused on executing its productivity programs, enhancing business model and investing in high-return projects which it expects to deliver double-digit growth in adjusted earnings per share in 2020.

Celanese expects to deliver 2020 adjusted earnings in the band of $11-$12 per share factoring in an uncertain demand outlook. The company expects to achieve the top end of this range if demand conditions improves next year.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -16.38% due to these changes.

VGM Scores

At this time, Celanese has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Celanese has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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