Celanese Corporation Reports Full Year 2018

Celanese Corporation (NYSE: CE), a global specialty materials company, today reported record GAAP diluted earnings per share of $8.95 and adjusted earnings per share of $11.00 for 2018. The Company also reported fourth quarter GAAP diluted earnings per share of $0.73 and adjusted earnings per share of $2.38. The difference between GAAP and adjusted earnings per share for the quarter and year was due to Certain Items, primarily a pension mark to market adjustment as well as expenses related to M&A and restructuring activities. Net sales for the year grew 17 percent over 2017 to $7.2 billion on price and volume expansion. Robust contributions from both Engineered Materials and the Acetyl Chain drove financial performance for the year. The Acetyl Chain elevated earnings to new levels by exercising its business model to grow volume and price year over year amid improving industry fundamentals. Engineered Materials grew through expanded project commercializations, contributions from the Nilit and Omni acquisitions, and improved joint venture performance. Celanese generated operating cash flow of $1.6 billion and free cash flow of $1.2 billion, both records, and deployed it to high return investments with the Clear Lake VAM expansion, acquisition of a Linde synthesis gas unit at Clear Lake, and acquisitions of Omni and Next Polymers. During the year, Celanese returned a record $1.1 billion in cash to shareholders through share repurchases and dividends.

Fourth Quarter and Full Year 2018 Highlights:

Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
(unaudited)
(In $ millions, except per share data)
Net Sales
Engineered Materials 622 580 2,593 2,213
Acetate Tow 161 157 649 668
Acetyl Chain 936 888 4,042 3,371
Intersegment Eliminations (30 ) (32 ) (129 ) (112 )
Total 1,689 1,593 7,155 6,140
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
(As Adjusted) (As Adjusted)
(unaudited)
(In $ millions, except per share data)
Operating Profit (Loss)
Engineered Materials 95 98 460 412
Acetate Tow 19 41 130 189
Acetyl Chain 211 175 1,024 509
Other Activities (66 ) (74 ) (280 ) (253 )
Total 259 240 1,334 857
Net earnings (loss) 101 204 1,213 849
Adjusted EBIT(1)(2)
Engineered Materials 150 142 694 599
Acetate Tow 53 68 273 301
Acetyl Chain 215 178 1,022 575
Other Activities (25 ) (36 ) (137 ) (119 )
Total 393 352 1,852 1,356
Equity Earnings and Dividend Income, Other Income (Expense)
Engineered Materials 49 43 219 171
Acetate Tow 25 26 116 107
Operating EBITDA(1) 471 431 2,168 1,659
Diluted EPS – continuing operations $ 0.73 $ 1.50 $ 8.95 $ 6.19
Diluted EPS – total $ 0.75 $ 1.49 $ 8.91 $ 6.09
Adjusted EPS(1) $ 2.38 $ 1.98 $ 11.00 $ 7.51
Net cash provided by (used in) investing activities (98 ) (92 ) (507 ) (549 )
Net cash provided by (used in) financing activities (526 ) 145 (1,165 ) (351 )
Net cash provided by (used in) operating activities 363 58 1,558 803
Free cash flow(1) 261 (38 ) 1,198 509

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(1)

See „Non-US GAAP Financial Measures“ below.

(2)

The Company’s discussion of adjusted earnings includes use of the term „segment income“. This non-GAAP term is defined below and reconciled in our Non-US GAAP Financial Measures and Supplemental Information document below.

Full Year Business Segment Overview

Engineered Materials

Engineered Materials‘ net sales grew 17 percent over 2017 to $2.6 billion. GAAP operating profit of $460 million and segment income of $694 million were driven by both price and volume expansion over 2017. Project commercializations totaling 3,274 for the year, contributions from the Nilit and Omni acquisitions, and improved affiliate performance delivered the fourth straight year of GAAP operating profit expansion and fifth straight year of segment income expansion for the segment. Engineered Materials delivered GAAP operating profit margin of 17.7 percent and segment income margin of 26.8 percent for the year. Volume growth of 9 percent over 2017 was driven by incremental project commercializations and contributions from acquisitions, and more than offset broad destocking across the value chain at the end of 2018. The segment expanded pricing 6 percent over 2017 levels on improved mix and commercial initiatives throughout the year. Affiliate earnings expanded 27 percent over 2017 to $218 million, primarily due to Celanese’s higher economic interest in the Ibn Sina joint venture and higher MTBE pricing.

Acetyl Chain

The Acetyl Chain generated net sales of $4.0 billion in 2018, an increase of 20 percent over the prior year. Pricing expanded 19 percent over 2017 levels as the business flexed its global network amid sustained improvements in industry fundamentals and utilization rates. GAAP operating profit of $1.0 billion and segment income of $1.0 billion, both records, represent another step up in the earnings power of the segment. The Acetyl Chain delivered highest-ever GAAP operating profit margin of 25.3 percent, a 1,020 basis point improvement over 2017, and record segment income margin of 25.3 percent, an 820 basis point expansion over the same period. Since implementing a model to leverage its global network, the business has demonstrated multiple years of continued margin expansion by identifying highest value commercial opportunities while driving productivity. Numerous activations to optimize the broad network delivered margin expansion in 2018 that more than offset increases in raw material, freight, and energy costs.

Acetate Tow

Acetate Tow GAAP operating profit was $130 million and segment income was $273 million for the year. Volume was flat year over year. Pricing in 2018 fell 3 percent off 2017 due to lower industry capacity utilization and was partially offset by mix. Raw material costs increased in 2018 over the prior year, primarily driven by higher acetyls pricing and freight costs. Dividends from affiliates were $116 million, 8 percent higher than last year.

Recent Highlights

  • Announced global reconfiguration of the acetic acid production footprint by expanding Clear Lake, Texas acetic acid capacity to approximately 2.0 million tons by late 2021 with limited net change in the Company’s total system tonnage via equivalent productivity options in Singapore and Nanjing, China.
  • Signed an agreement to acquire India-based Next Polymers Ltd., one of the country’s largest domestic engineering thermoplastic (ETP) compounders. Completed on January 2, 2019, the acquisition adds 20 kt of local compounding capacity.
  • Announced the signing of an agreement to acquire a 365 kt synthesis gas production unit from Linde, located at the Company’s Clear Lake, Texas Acetyl Chain production facility.
  • Commercialized 866 Engineered Materials projects in the fourth quarter of 2018. Total new project completions in 2018 were 3,274, a 47 percent increase year over year.
  • Selected to join the S&P 500 index effective prior to the open of trading on December 24, 2018.
  • Completed a registered offering of €500 million of 2.125% Senior Notes due 2027, using proceeds primarily to refinance an existing term loan maturing in 2021. Also extended maturity of revolving credit facility to 5 years and increased to $1.25 billion. This extends Celanese debt maturities while also reducing interest costs.

Fourth Quarter Business Segment Overview

Engineered Materials

Engineered Materials delivered record fourth quarter net sales of $622 million, 7 percent higher than the same quarter of 2017. The segment delivered fourth quarter GAAP operating profit of $95 million and fourth quarter segment income of $150 million as the business grew pricing and volume over the prior year. In the fourth quarter, a focused effort to extend the opportunity pipeline model grew Engineered Materials volumes over the fourth quarter of 2017, more than offsetting a reset of inventory levels across the industry value chain which began late in the quarter. The opportunity pipeline commercialized 866 projects in the quarter, 48 percent higher than the same quarter of 2017, as the business increasingly met customer innovation needs with customized technology solutions. GAAP operating profit margin was 15.3 percent and segment income margin was 24.1 percent, respectively, down 160 and 40 basis points from last year, driven by new acquisitions contributing to margin dilution and strong growth in Asia. Margins are expected to recover from fourth quarter levels as the segment returns to more normalized regional sales mix and lower raw material costs in the quarter flow through inventory.

Acetyl Chain

The Acetyl Chain’s net sales for the quarter were $936 million, 5 percent higher than the fourth quarter of 2017, driven by price increases. GAAP operating profit of $211 million and segment income of $215 million, fourth quarter records, both increased by 21 percent over the same quarter last year. The global supply network and integrated product chain positioned the Acetyl Chain to expand pricing in excess of raw material increases year over year. Volume in the quarter declined 2 percent over the fourth quarter of 2017 as the segment offset most of the impact of an extended VAM turnaround at Clear Lake and customer destocking in the quarter, particularly in Asia. The Acetyl Chain delivered GAAP operating margin of 22.5 percent and segment income margin of 23.0 percent, both fourth quarter records, sustaining margin levels in a quarter with winter seasonality.

Acetate Tow

Acetate Tow recorded fourth quarter GAAP operating profit of $19 million and segment income of $53 million. Income in the quarter declined year over year due primarily to the impact of an inventory build in the fourth quarter of 2017 and higher acetyls raw material costs. Pricing declined 2 percent from the fourth quarter of 2017. Segment performance is expected to rebound sequentially in the first quarter of 2019, more consistent with the third quarter of 2018.

Cash Flow and Tax

Celanese generated operating cash flow of $1.6 billion and free cash flow of $1.2 billion for the year. Capital expenditures for the year was $337 million, approximately $70 million higher than 2017 due to a number of productivity investments and incremental expansion projects across businesses. For the year, $1.1 billion of cash was returned to shareholders, including $817 million in share repurchases and $280 million in cash dividends. The Company completed $567 million in share repurchases in the fourth quarter with $713 million remaining under the current share repurchase authorization as of December 31, 2018. The effective US GAAP tax rate was 19 percent for 2018 compared to 20 percent for 2017. The tax rate for adjusted earnings per share was 14 percent for 2018, 2 percent lower year over year, primarily due to the impact of US tax reform.

Outlook

„Underlying fundamentals and forward looking demand forecasts for our products and solutions-based businesses remain strong. The strength of our business models, additional contribution from organic investment projects underway, and planned acquisition contributions give us confidence in reaffirming our plan to earn $12 per share in 2020. Having said that, we believe the economic weakness surfacing last quarter primarily in Europe and Asia will continue through the first quarter and into the second before global business starts to recover. Assuming this slower start and expecting some fourth quarter 2019 moderation, which we commonly see, we would anticipate 2019 adjusted earnings of approximately $10.50 per share. We will be in a better position to refine this outlook during our first quarter earnings call in April, based on updated views of customer activity and economic trends,“ said Mark Rohr, chairman and chief executive officer.

Regarding a forward view on a US GAAP basis, we are unable to reconcile forecasted adjusted earnings per share growth to US GAAP diluted earnings per share without unreasonable efforts because a forecast of Certain Items, such as mark-to-market pension gains/losses, is not practical. The Company’s earnings presentation and prepared remarks related to the fourth quarter and full year results will be posted on its website at investors.celanese.com under News & Events/Presentations after market close on January 28, 2019. Information about Non-US GAAP measures is included in a Non-US GAAP Financial Measures and Supplemental Information document posted on our website and available at the link below. See „Non-GAAP Financial Measures“ below.

Quelle: Celanese