Celanese Corporation (NYSE: CE), a global chemical and specialty materials company, reported second quarter GAAP diluted earnings per share of $1.67 and adjusted earnings per share of $2.38 on net sales of $1.6 billion. Celanese delivered solid performance, amid a backdrop of weak demand and accelerated destocking, by exercising its differentiated business models in the Acetyl Chain and Engineered Materials, and demonstrating a stable Acetate Tow earnings profile. In the second quarter, the Company generated operating cash flow of $424 million and free cash flow of $356 million, and returned $378 million to shareholders through $300 million in share repurchases and $78 million in dividends. With an expectation for improved demand fundamentals as the year progresses, the Company reaffirmed its full year 2019 guidance for adjusted EPS.
Second Quarter 2019 Financial Highlights:
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Three Months Ended |
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June 30, |
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March 31, |
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June 30, |
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(unaudited) |
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(In $ millions) |
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Operating Profit (Loss) |
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Engineered Materials |
103 |
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144 |
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114 |
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Acetate Tow |
(44) |
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40 |
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39 |
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Acetyl Chain |
188 |
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202 |
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273 |
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Other Activities |
(61) |
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(66) |
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(68) |
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Total |
186 |
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320 |
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358 |
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Three Months Ended |
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June 30, |
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March 31, |
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June 30, |
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(unaudited) |
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(In $ millions, except per share data) |
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Net Earnings (Loss) |
210 |
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338 |
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345 |
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Adjusted EBIT(1)(2) |
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Engineered Materials |
148 |
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183 |
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175 |
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Acetate Tow |
71 |
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72 |
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77 |
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Acetyl Chain |
189 |
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203 |
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277 |
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Other Activities |
(32) |
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(37) |
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(38) |
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Total |
376 |
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421 |
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491 |
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Equity Earnings and Dividend Income, Other Income (Expense) |
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Engineered Materials |
36 |
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46 |
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54 |
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Acetate Tow |
29 |
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32 |
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33 |
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Operating EBITDA(1) |
458 |
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502 |
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573 |
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Diluted EPS – continuing operations |
$ |
1.67 |
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$ |
2.64 |
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$ |
2.52 |
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Diluted EPS – total |
$ |
1.66 |
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$ |
2.63 |
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$ |
2.52 |
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Adjusted EPS(1) |
$ |
2.38 |
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$ |
2.62 |
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$ |
2.90 |
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Net cash provided by (used in) investing activities |
(66) |
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(177) |
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(96) |
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Net cash provided by (used in) financing activities |
(307) |
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(130) |
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(254) |
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Net cash provided by (used in) operating activities |
424 |
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307 |
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585 |
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Free cash flow(1) |
356 |
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224 |
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500 |
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______________________________ |
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(1) |
See “Non-US GAAP Financial Measures” below. |
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(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 referenced below. |
Second Quarter 2019 Highlights:
- Announced the shutdown of acetate flake production at the Ocotlán, Jalisco, Mexico manufacturing facility by October 31, 2019, ceasing all manufacturing operations at the facility and further consolidating the global acetate manufacturing operations.
- Completed the addition of a new GUR® ultra-high molecular weight polyethylene (UHMW-PE) production line at the Nanjing, China manufacturing facility to support significant growth in the electric vehicle market. The new production line adds approximately 15 kt per year of additional product capacity.
- Delivered 1,177 Engineered Materials project wins in the second quarter of 2019 and on track to commercialize more than 4,000 projects for the year.
- Completed a registered offering of $500 million of U.S. dollar-denominated senior notes due in 2024. The Company simultaneously entered into a cross-currency swap to effectively convert to a euro-denominated borrowing with a net borrowing rate of 1.03 percent.
- Completed $1.2 billion in share repurchases over the last 12 months or 9 percent of outstanding shares.
Second Quarter 2019 Business Segment Overview
Engineered Materials (EM)
Engineered Materials recorded net sales of $593 million in the second quarter. The volume impact on net sales was a decline of 7 percent sequentially, comprised of a 4 percent decline in volumetric polymer sales primarily due to demand weakness and industry destocking, as well as a 3 percent sequential mix impact which includes the timing of medical sales. The industry saw broad price declines in Asia and competitive pricing pressure globally in nylon, but the Company offset much of this pressure, holding the sequential price decline to 3 percent. GAAP operating profit was $103 million and segment income was $148 million as the business worked to overcome demand softness across multiple end markets, continued destocking, and weaker affiliate performance. The business continued to execute its customer needs based project model to commercialize 1,177 projects, delivering performance in excess of weaker underlying end markets including automotive and electronics.
Acetyl Chain
The Acetyl Chain recorded second quarter net sales of $865 million, as sequential volume growth of 2 percent largely offset a decline in industry acetic acid pricing. GAAP operating profit was $188 million and segment income was $189 million, as the Acetyl Chain global system pivoted downstream to VAM and emulsions to generate incremental value. GAAP operating and segment income margin performance of 22 percent confirms the ability of the Acetyl Chain to generate earnings performance that is differentiated versus the market environment. The Acetyl Chain delivered sequential volume growth, despite major VAM turnarounds at Bay City and Nanjing, through rigorous inventory planning and product sourcing. High-return investments are underway, which will generate significant productivity gains and further expand the efficiency and operating flexibility of the global acetyls network.
Acetate Tow
Acetate Tow reported a GAAP operating loss of $44 million, including an impairment charge of $83 million relating to the Ocotlán shutdown, and segment income of $71 million in the second quarter. Price and volume in the quarter were stable year over year and sequentially, reflecting strong execution and steadier industry dynamics. Dividends from affiliates were $29 million in the second quarter, down slightly from the first quarter due to the impact of timing and currency.
Cash Flow and Tax
The Company delivered operating cash flow of $424 million and free cash flow of $356 million in the quarter, driven by improved conversion of earnings to cash through working capital management. Capital expenditures in the quarter were $65 million, with roughly half of non-maintenance spend through the first half of the year devoted to cost reduction projects. The Company is on pace for capital expenditures approaching $400 million for the year. A total of $378 million in cash was returned to shareholders, including $300 million in share repurchases and $78 million in dividends. The Company repurchased 2 percent of total shares outstanding in the quarter and 9 percent over the last twelve months. The US GAAP effective tax rate was 12 percent in the second quarter compared to 22 percent in the same quarter of last year, primarily due to 2019 reductions in a valuation allowance on future foreign tax credit usage. The adjusted tax rate was 14 percent in the quarter, unchanged year over year.
Outlook
“Our teams successfully executed on the unique business models we have in place to again deliver solid earnings performance amid a very challenging economic backdrop,” said Lori Ryerkerk, chief executive officer. “The Acetyl Chain flexed its global network to drive incremental value downstream and deliver robust foundational earnings despite weak industry fundamentals. Engineered Materials worked the project pipeline model to deliver results in excess of underlying end market demand conditions. Acetate Tow again displayed a stabilized earnings profile, generating adjusted earnings consistent with last quarter. Looking forward, we continue to see a path to 2019 adjusted earnings of approximately $10.50 per share based on an expectation that underlying fundamentals will improve as we progress through the end of the year. We continue to strengthen our businesses by executing on our continuous productivity programs and strategically investing in high-return organic projects.”
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 prepared remarks related to the second quarter results will be posted on its website at investors.celanese.com under Financial Information/Financial Document Library after market close on July 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. See “Non-GAAP Financial Measures” below.
