Celanese Corporation (NYSE: CE), a global chemical and specialty materials company, reported first quarter GAAP diluted earnings per share of $2.64 and adjusted earnings per share of $2.62 on net sales of $1.7 billion. Despite a challenging business environment, the Company delivered sequential growth in operating profit and adjusted EBIT due to the resiliency of the Engineered Materials and Acetyl Chain commercial models and continued stability in Acetate Tow. In the quarter, Celanese generated operating cash flow of $307 million and free cash flow of $224 million, both first quarter records. The Company reaffirmed its full year 2019 guidance for both adjusted EPS and free cash flow. Celanese continues to strategically invest in high return organic projects with recently announced incremental expansions in both Engineered Materials and the Acetyl Chain.
First Quarter 2019 Highlights:
- Announced appointments of Mark Rohr to Executive Chairman and Lori Ryerkerk to Chief Executive Officer, effective May 1, 2019. Ryerkerk most recently served as Executive Vice President of Global Manufacturing at Shell.
- Welcomed A. Lynne Puckett as Senior Vice President and General Counsel, effective February 13, 2019.
- Announced an expansion of the thermoplastic co-polyester production unit at the Donegani facility in Ferrara, Italy to support continued growth in Engineered Materials.
- Announced expansion of Clear Lake methanol production to 1.7 million metric tons per year in support of the global reconfiguration of the acid production footprint.
- Commercialized 1,075 Engineered Materials projects in the first quarter of 2019, a 45 percent increase year over year, and on track to delivering more than 4,000 project wins in 2019.
- Completed the acquisition of Next Polymers Ltd., a leading domestic engineering thermoplastics compounder in India.
- Received a credit rating upgrade on April 12, by Standard & Poor’s to BBB from BBB-.
- Increased the quarterly dividend by 15 percent to an annualized rate of $2.48 per share, the tenth consecutive year of dividend increases.
- Announced a new share repurchase authorization of $1.5 billion, adding to the $0.5 billion which remains from the prior authorization.
First Quarter 2019 Business Segment Overview
Engineered Materials (EM)
Engineered Materials generated first quarter net sales of $663 million, an increase of 7 percent over the fourth quarter of 2018 on higher volume and pricing. GAAP operating profit of $144 million and segment income of $183 million were both first quarter records as the business continued to lift average pricing in the quarter. The business delivered first quarter operating profit margin of 21.7 percent and adjusted EBIT margin of 27.6 percent, increases of 640 basis points and 350 basis points, respectively, over the prior quarter. Although volumes were down 3 percent year over year, margins increased both sequentially and year over year as the business expanded pricing and upgraded the sales mix. The EM base business, excluding affiliates, contributed record adjusted EBIT that more than offset continued underlying demand weakness and affiliate performance. As a result, the overall business grew GAAP operating profit and segment income on a sequential and year over year basis.
Acetyl Chain
The Acetyl Chain recorded net sales of $889 million in the first quarter, as sequential volume growth of 5 percent partially offset a decline in industry pricing. GAAP operating profit was $202 million and segment income was $203 million, the fifth consecutive quarter each has surpassed $200 million. GAAP operating and segment income margins of approximately 23.0 percent, amid lower industry utilization and pricing, further confirm the elevated foundational earnings of the business. The Acetyl Chain utilized the newly expanded VAM capacity at Clear Lake and flexed its global supply network and integrated chain to grow volume and upgrade the sales mix sequentially. The Acetyl Chain continues to expand its ability to activate the global network to deliver performance in excess of underlying market conditions.
Acetate Tow
Acetate Tow reported GAAP operating profit of $40 million and segment income of $72 million in the first quarter, improvements over the fourth quarter of 2018 and reflective of anticipated run-rate quarterly performance levels. Price and volume in the first quarter increased slightly over the fourth quarter of 2018 and were stable compared to the same quarter last year. Dividends from affiliates were $32 million in the first quarter, in line with the prior year but higher sequentially due to the timing of dividend payments from the Chinese joint ventures.
Cash Flow and Tax
The Company delivered a first quarter record performance in operating cash flow and free cash flow of $307 million and $224 million, respectively, driven by strong business results and efficient management of working capital. Capital expenditures in the quarter were $79 million, including productivity and expansion projects in Engineered Materials and the Acetyl Chain, and on track to total $350 to $400 million for the year. For the quarter, a total of $270 million in cash was returned to shareholders, including $70 million in dividends and $200 million in share repurchases. The effective US GAAP tax rate was 12 percent in the first quarter compared to 15 percent in the same quarter of last year, primarily due to valuation allowance adjustments on deferred tax assets. The tax rate for adjusted EPS was 14 percent in the quarter, unchanged year over year.
Outlook
“Challenging global business conditions persisted into the new year, and our strong first quarter performance solidly underscores the capability of our businesses to deliver in any environment,” said Mark Rohr, chairman and chief executive officer. “Engineered Materials executed the project pipeline model to deliver earnings growth, both sequential and year over year, that was distinctly elevated beyond underlying market conditions. In the Acetyl Chain, another quarter of fundamentally strong earnings displayed the power to create incremental value by flexing our global network. Looking forward, we are not forecasting a significant improvement in demand in the current quarter, and therefore expect second quarter performance similar to first quarter. Based on an expectation that underlying fundamentals will begin to improve later this year, we have confidence in reaffirming our expectation for 2019 adjusted earnings of approximately $10.50 per share. We continue to strategically invest in our businesses and further expand our capability to drive consistent growth and value creation for our shareholders.”
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 first quarter results will be posted on its website at investors.celanese.com under News & Events/Presentations after market close on April 22, 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.
Celanese Corporation is a global chemical leader in the production of differentiated chemistry solutions and specialty materials used in most major industries and consumer applications. Our businesses use the full breadth of Celanese’s global chemistry, technology and commercial expertise to create value for our customers, employees, shareholders and the corporation. As we partner with our customers to solve their most critical business needs, we strive to make a positive impact on our communities and the world through The Celanese Foundation. Based in Dallas, Celanese employs approximately 7,700 employees worldwide and had 2018 net sales of $7.2 billion. For more information about Celanese Corporation and its product offerings, visit www.celanese.com or our blog at www.celaneseblog.com.
