Celanese Beats Consensus - Analyst Blog

Specialty material company Celanese Corp. (CE) reported its adjusted earnings of 73 cents per share in the fourth quarter of 2010, beating the Zacks Consensus Estimate of 68 cents. Diluted earnings per share in the quarter were 64 cents versus $0.00 in the prior year quarter.

??In fiscal 2010, diluted earnings were $2.68 per share versus $3.14 in the prior year. Adjusted earnings were $3.37 per share versus $1.75 per share in the prior year.

Revenues and Margins

Quarterly revenues grew 8.6% year over year to $1.5 billion, primarily driven by higher volumes across all business segments. Results were in line with the Zacks Consensus Estimate. Pricing gains in the Acetyl Intermediates and Industrial Specialties businesses further boosted growth. Operating profit jumped 26.6% to $138 million on lower fixed costs. Operating margins came in at 9.2% from last year's 7.9%.

In fiscal 2010, total revenue was $5.9 billion versus $5.1 billion in the prior year.

Segment Review

Advanced Engineered Materials: The segment benefited from the specialty engineered polymers business prosperity. Net sales soared 14.6% year over year to $274 million on higher volumes with increasing consumer demand.

Operating profit of $33 million in the fourth quarter of 2010 was slightly below the $34 million in the year-ago period as the profit contribution from higher volumes and pricing were offset by increased raw material costs and other expenses primarily associated with a planned turnaround in North America and the timing of other costs. Operating profit in the quarter was also negatively impacted by expenses associated with the company's planned European expansion.

Equity earnings from the Ibn Sina affiliate were $17 million, a $1 million decrease from the prior year. Total equity earnings from the company's Asian affiliates were $13 million compared with $0 in the prior year period on improved performance in the current period and the impact of a planned turnaround at one of the Asian affiliates during the fourth quarter of 2009.

Consumer Specialties: This segment delivered strong performance on improved global demand across all product lines, particularly for cellulose acetate products. Net sales were $281 million, up from last year's $267 million.

The improvement in revenues was attributable to higher volumes and increased pricing. Operating profit was $59 million versus $47 million in the prior year period. Rising raw material and energy costs offset volume gains in the segment.

Industrial Specialties: For the reported quarter, net sales in the segment were $249 million, up 8.7% from $219 million in the year-ago quarter. The segment benefited from its application of innovative efforts and strong demand. Operating profit was $11 million compared with $16 million in the fourth quarter of 2009 as the higher volumes and pricing were partially offset by higher raw material costs, particularly in the Emulsions business.

Acetyl Intermediates: Net sales climbed 7.5% to $799 million on seasonally strong demand for acetic acid and downstream derivative products. Operating profit increased to $94 million from $72 million in the same period last year, driven by higher pricing and volumes, as well as the benefits of the closure of the company's operations in Pardies, France, partially offset by higher raw material costs for methanol and ethylene.

Liquidity

Cash and cash equivalents at the end of the fourth quarter of 2010 were $740 million versus $1,254 million in the same period in 2009. Cash flow provided by operating activities was $452 million for the full year 2010 compared with $596 million in the prior year, as higher trade working capital and higher cash taxes offset the improved operating performance. Total debt was $2.5 billion versus $2.2 billion in the prior year.

Outlook

Encouraged by the strength of its 2010 performance, its confidence in its earnings growth programs, and its expectations for a continued, modest global economic recovery, the company raised its outlook for the full year 2011. The company expects full year 2011 adjusted earnings per share to be at least 60 cents higher and operating EBITDA to be at least $150 million higher than the 2010 results.

Zacks Recommendation

Celanese is one of the world's largest producers of acetyl products, as well as a leading global producer of high-performance engineered polymers. The company's earnings outlook has been improving, helped by the strong performance in the Advanced Engineered Materials business.

The company is operating its facilities in the Acetyl Intermediates segment at above the industry utilization rates of 80%, which provides cost advantages. Capacity utilization has also improved in the Industrial Specialties segment on rising demand in the Asia Pacific.

However, Celanese is exposed to volatile raw material (natural gas, ethylene and methanol) prices used in the production of basic chemicals in the Acetyl Intermediates segment, principally formaldehyde, acetic acid and vinyl acetate monomer.

The company also faces stiff competition from larger peers, E.I. DuPont de Nemours and Co. (DD) and The Dow Chemical Co. (DOW) in the Advanced Engineered Material Segment as well as in the Industrial Specialties segment. Celanese's balance sheet leverage is also relatively high, which limits its financial flexibility.

Currently, Celanese has a short-term (1 to 3 months) Zacks #2 Rank (Buy) rating and a long-term (6 months and higher) Neutral recommendation.

 
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