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Celanese (CE) Tops Q1 Earnings and Sales, Raises Outlook

Celanese Corporation CE, a chemical and advanced materials producer, continued with its positive earnings surprise streak with a beat in first-quarter 2016. The company reported first-quarter adjusted earnings of $1.83 per share. The figure increased 6% from the prior-year quarter and 46% from the previous quarter. Earnings also beat the Zacks Consensus Estimate of $1.52. 
 
Celanese reported quarterly sales of $1,404 million, beating the Zacks Consensus Estimate of $1,384 million. The top line declined roughly 3% from the prior year but rose 5% from the preceding quarter. Adjusted EBIT was $358 million and margin was 25.5%, both record performances for a first-quarter release.
 
 
Material Solutions: Net sales of the segment were $594 million (up 4% year over year) while the core income reported was $226 million. Margin expanded by 360 basis points to 38%, a record performance. Within the segment, Engineered Materials’ EBIT rose 46% year over year while Advanced Engineer Materials saw volumes grow by 5%. The momentum of the opportunity pipeline continued in the quarter, with 300 new projects being introduced. 
 
The Consumer Specialties segment saw a 15% year-over-year rise in core income to $106 million. The average pricing for the quarter was down by 9%, offset by an increase of 17% in volume, productivity gains and low energy costs.
 
Acetyl Chain: This segment reported net sales of $840 million (down roughly 7%), with a core income of $148 million and a solid margin of 17.6%. The core income declined 11% year over year, primarily due to a sharp reduction in raw materials’ price and high demand in China eluding the company in the quarter. 
 
Financials
 
Cash and cash equivalents were $716 million at the end of the quarter, down 16% year over year. Long-term debt was $2,487 million, down roughly 2% year over year.
 
Celanese generated operating cash flow of $287 million and free cash flow of $217 million, both record figures for first-quarter results. The company reduced leverage by repaying $405 million of short-term borrowings. Capital expenditure in the quarter amounted to $70 million. 
 
Developments
 
Celanese expanded its Engineered Materials product portfolio to add Nylon 6 and Nylon 6/6 using new technology. It also announced the expansion of its vinyl acetate ethylene (VAE) portfolio in Nanjing, China, with the addition of Celvolit 149HV.
 
Outlook
 
Per management, Celanese is operating in an adverse global environment with sluggish growth, inclination of raw material prices to be deflationary and increasing geopolitical tensions. Demand in China continues to remain low and modest at best in Europe and North America. 
 
However, the company intends to pursue commercial discipline, excellence in operation and productivity to survive and grow in the current environment. The company continues to capture opportunities in the Materials Solutions and Acetyl Chain segments by increasing momentum and via portfolio expansion. 
 
The company revised its outlook, projecting adjusted earnings per share to increase 8%–10% in 2016, up from 5%–10% anticipated earlier.
 
Celanese’s shares rose around 5% in the after-hours trading on Monday.
 
Zacks Rank 
 
Celanese currently carries a Zacks Rank #3 (Hold).
 
Some better-ranked stocks in the chemicals space are Arkema S.A. ARKAY, Koninklijke DSM N.V. RDSMY and Sinopec Shanghai Petrochemical Co. Ltd. SHI, all of which sport a Zacks Rank #1 (Strong Buy). 
 
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CELANESE CP-A (CE): Free Stock Analysis Report
 
ARKEMA-ADR (ARKAY): Free Stock Analysis Report
 
SHANGHAI PETROC (SHI): Free Stock Analysis Report
 
KONINKLIJKE DSM (RDSMY): Free Stock Analysis Report
 
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