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Methanex (MEOH) Q1 Loss Wider than Expected, Sales Trail

Chemical maker Methanex Corporation MEOH recorded loss of $23 million or 26 cents per share in the first quarter of 2016, against a profit of $9 million or 9 cents per share in the year-ago quarter. Loss per share was wider than the Zacks Consensus Estimate of a loss of 22 cents.              

Methanex’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $36 million in the quarter, reflecting a decline of roughly 62.9% from $97 million recorded a year ago. The decrease was attributable to lower average realized prices of methanol in the quarter.

Furthermore, revenues fell roughly 24.6% year over year to $435 million in the reported quarter, missing the Zacks Consensus Estimate of $449 million.

Average realized price was $230 per ton in the quarter, down roughly 31.8% from $337 per ton a year ago. Total production was 1,639,000 tons, marking a 22.9% rise from 1,264,000 tons in the prior-year quarter. Methanex-produced methanol sales volumes rose 23.6% year over year to 1,529,000 tons.

Shares of Methanex fell roughly 2.2% to close at $35.35 on Apr 28.

Production Summary

New Zealand: Methanex produced 509,000 tons in the first quarter of 2016, up 5.8% from 481,000 tons produced a year ago. Planned upstream gas supply maintenance led to production loss of roughly 50,000 tons in the reported quarter. No further maintenance is anticipated for the rest of 2016.

United States: Methanex’s Geismar facilities produced 483,000 tons in first-quarter 2016, compared to 180,000 tons produced a year ago. The first quarter of 2016 also includes the production of the Geismar 2 facility which commenced in Dec 2015.

Trinidad: Methanex's fully-owned Titan facility produced 204,000 tons in the quarter, up roughly 9.7% from 186,000 tons produced a year ago. The Atlas facility, in which the company holds a 63.1% interest, produced 109,000 tons, down around 47.9% year over year. In the reported quarter, the Atlas facility underwent a 45-day turnaround, returning to normal operation at the end of March.

The company continues to face gas curtailments in the Trinidad facility. This is caused by the mismatch between the upstream supply to the Natural Gas Company of Trinidad and Tobago (NGC) and the downstream demand from NGC’s customers, which include Titan and Atlas.

Egypt: The facility produced 150,000 tons (Methanex share of 75,000 tons) compared to 16,000 tons (Methanex share of 8,000 tons) produced in the prior-year quarter. In January, the company had to stop production in the facility due to what management believes was an act of sabotage, for 29 days. Production was resumed in February but had to be stopped in March due to restrictions in the supply of natural gas.

The Egypt facility has been facing restrictions since mid-2012, with these becoming more significant since 2014. The government is working on measures to address the problem. Until then, the company will continue facing limited production at the plant.

Medicine Hat, Canada: The facility produced 159,000 tons in the quarter, up 25.2% from 127,000 tons produced a year ago.

Chile: During the reported quarter, 100,000 tons were produced in the region, supported fully by natural gas supplies from Chile. The company believes there is enough gas available in Chile to operate at times through the southern hemisphere winter.

The company believes Chile to be of great potential as a recent U.S. Geological Survey projected enough supply of gas in the region to support Methanex as well as the locals for decades. The company’s main gas supplier in Chile, Empresa Nacional del Petroleo, has been making steady progress in drilling in the region.

Financials

Consolidated cash flows from operating activities jumped around 89.2% year over year to $70 million in the reported quarter. Cash and cash equivalents were $275 million as of Mar 31, 2016, down 56.1%. Long-term debt was $1,468.8 million, down 2.5% year over year.

Methanex’s board paid a quarterly dividend of 27.5 cents per share to stockholders, amounting to a total of $25 million.

Outlook

Methanex is optimistic about methanol prices in the second quarter of 2016. The company has stabilized contract pricing and is seeing an uptrend in the Asian spot market for the current quarter. With the increased production capacity, the company is well placed to take advantage of the rising methanol prices. This quarter, the company is also focusing on the delivery of ocean going vessels that run on methanol.

Zacks Rank

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

Better-ranked companies in the diversified chemical space include Akzo Nobel N.V. AKZOY, Arkema S.A. ARKAY and Koninklijke DSM N.V. RDSMY, all sporting a Zacks Rank #1 (Strong Buy).

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