Celanese Corporation (NYSE: CE), a global chemical and specialty materials company, has reported second quarter 2023 GAAP diluted earnings per share of $2.00 and adjusted earnings per share of $2.17. The Company generated net sales of $2.8 billion in the quarter, a decrease of 2 percent from the prior quarter, reflecting a sequential decrease in pricing of 4 percent partially offset by a sequential increase in volume of 2 percent. The Company reported second quarter consolidated operating profit of $335 million, adjusted EBIT of $444 million, and operating EBITDA of $616 million, sequential increases of 33, 5, and 3 percent, respectively.
The Company initiated incremental actions to reduce cost, align production and inventory levels with demand, and maximize cash generation in response to continued demand softness, destocking across certain end-markets, and heightened competitive dynamics. As a result, the Company:
- Reduced inventory balances by $235 million in the second quarter with inventory reductions across Engineered Materials and the Acetyl Chain of 10 percent and 5 percent, respectively;
- Generated second quarter operating cash flow of $762 million and free cash flow of $611 million, all-time records by $132 million and $91 million, respectively; and
- Reduced net debt by $515 million in the second quarter, including a $386 million sequential decrease in debt and a $129 million sequential increase in cash.
“While we continue to navigate a persistently soft demand environment and volatile competitive backdrop, our team executed incremental actions that enabled us to deliver sequential earnings growth and record cash generation in the second quarter,” said Lori Ryerkerk, chair and chief executive officer. “Our priority is to continue to maximize cash generation and I thank our team for exceeding our working capital reduction target in the second quarter to support free cash flow that was 18 percent higher than any quarter in our history. With strong free cash flow and anticipated net proceeds of approximately $450 million from the Food Ingredients joint venture, I am confident that we will meaningfully exceed the full year objective to reduce net debt by $1 billion in 2023.”
Second Quarter 2023 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, except per share data) |
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Net Sales |
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Engineered Materials |
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1,585 |
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1,630 |
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948 |
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Acetyl Chain |
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1,233 |
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1,250 |
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1,559 |
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Intersegment Eliminations |
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(23 |
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(27 |
) |
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(21 |
) |
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Total |
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2,795 |
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2,853 |
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2,486 |
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Operating Profit (Loss) |
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Engineered Materials |
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158 |
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112 |
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166 |
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Acetyl Chain |
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295 |
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278 |
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428 |
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Other Activities |
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(118 |
) |
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(139 |
) |
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(111 |
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Total |
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335 |
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251 |
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483 |
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Net Earnings (Loss) |
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221 |
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93 |
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436 |
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Adjusted EBIT(1) |
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Engineered Materials |
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205 |
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215 |
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224 |
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Acetyl Chain |
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332 |
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316 |
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475 |
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Other Activities |
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(93 |
) |
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(107 |
) |
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(53 |
) |
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Total |
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444 |
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424 |
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646 |
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Equity Earnings and Dividend Income, Other Income (Expense) |
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Engineered Materials |
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20 |
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10 |
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53 |
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Acetyl Chain |
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32 |
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34 |
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39 |
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Operating EBITDA(1) |
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616 |
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596 |
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744 |
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Diluted EPS – continuing operations |
$ |
2.00 |
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$ |
0.86 |
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$ |
4.03 |
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Diluted EPS – total |
$ |
2.01 |
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$ |
0.83 |
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$ |
3.98 |
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Adjusted EPS(1) |
$ |
2.17 |
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$ |
2.01 |
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$ |
4.99 |
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Net cash provided by (used in) investing activities |
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(163 |
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(178 |
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(136 |
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Net cash provided by (used in) financing activities |
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(447 |
) |
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(69 |
) |
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(159 |
) |
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Net cash provided by (used in) operating activities |
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762 |
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(96 |
) |
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495 |
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Free cash flow(1) |
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611 |
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(261 |
) |
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368 |
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____________________________ |
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(1) |
See “Non-US GAAP Financial Measures” below. |
Recent Highlights:
- Announced the signing of a definitive agreement with finalized terms and value for the Food Ingredients joint venture, Nutrinova. Mitsui & Co., Ltd. will acquire a 70 percent stake at a purchase price of $472.5 million representing an enterprise valuation of approximately 15 times 2022 EBITDA.
- Awarded the 2023 Manufacturing Leadership Award by the Manufacturing Leadership Council and the National Association of Manufacturers for the Company’s efforts to deploy a private 5G network at its Clear Lake, Texas facility to enable its strategic initiative of creating the digital plant of the future.
- Received the U.S. Environmental Protection Agency ENERGY STAR Award 2023 Partner of the Year designation for the eighth consecutive year and the Sustained Excellence designation, the highest honor of the ENERGY STAR Awards, for the sixth consecutive year.
Second Quarter 2023 Business Segment Overview
Acetyl Chain
The Acetyl Chain delivered second quarter net sales of $1.2 billion, a 1 percent decrease from the prior quarter. Volume increased by 2 percent sequentially and decreased 2 percent from the same quarter last year due to muted seasonal recovery in demand and residual destocking in certain end-markets. Second quarter pricing across the Acetyl Chain decreased by 3 percent sequentially and 19 percent year over year as a result of lower global industry utilization due to demand. In response to the challenging environment, the business took decisive actions to exercise its commercial and supply chain optionality. The Acetyl Chain reliably supplied an incremental share of volume during second quarter industry turnarounds to offset a portion of macro demand softness. Additionally, the business directed more of its sales into downstream derivatives where stronger margins could be captured. The business continued to align its production and inventory to current demand conditions by reducing production rates at its highest cost facilities and delivering a second quarter inventory reduction of $29 million. As a result of these actions, the Acetyl Chain delivered sequential earnings growth with second quarter operating profit of $295 million, adjusted EBIT of $332 million, and operating EBITDA of $386 million at margins of 24, 27, and 31 percent, respectively. Through the first half of 2023, the Acetyl Chain has performed in line with foundational earnings guidance despite market conditions that remain sub-foundational.
Engineered Materials
Engineered Materials reported second quarter net sales of $1.6 billion, a sequential decrease of 3 percent, due to a 5 percent price decrease that offset a 2 percent volume increase. Pricing reflected poor demand conditions across several differentiated end-markets and continued destocking, which resulted in intensified industry competitive dynamics. In response, Engineered Materials took actions to reduce production rates at higher cost facilities and directed sales into alternative end-markets. By leveraging its broad customer base, the business offset sequential demand deterioration in certain end-markets to deliver sequential volume growth in aggregate. In support of free cash flow, the business reduced inventory by $207 million in the second quarter, which resulted in an unfavorable impact to earnings. Engineered Materials delivered second quarter operating profit of $158 million, adjusted EBIT of $205 million, and operating EBITDA of $317 million at margins of 10, 13, and 20 percent, respectively. The Mobility and Materials (M&M) contribution to EM earnings increased sequentially through volume growth and $11 million in incremental synergies delivered across the quarter.
Cash Flow and Tax
Celanese reported second quarter operating cash flow of $762 million and free cash flow of $611 million which included cash capital expenditures of $145 million. Celanese returned $76 million in cash to shareholders via dividends in the quarter.
The effective income tax rate was a benefit of 2 percent for the second quarter compared to an expense of 20 percent for the same quarter in 2022. The lower effective rate was primarily due to decreased earnings in high taxed jurisdictions related to current demand conditions and a decrease in valuation allowances on U.S. foreign tax credit carryforwards due to revised forecasts of foreign sourced income and expenses during the carryforward period. The effective tax rate for adjusted earnings was 12 percent based on expected jurisdictional earnings mix for the full year and consideration of other non-recurring U.S. GAAP items.
Outlook
“The current demand and competitive backdrop remains volatile and unpredictable,” said Lori Ryerkerk. “We are executing on incremental actions to position our commercial teams in a fluid sales environment, align our production and inventory levels with current demand, aggressively reduce costs, and maximize cash generation. We expect contributions from these actions will support strong 2023 cash generation and continued earnings growth across the second half.”
Reflective of controllable actions and improvement in destocking conditions across the remainder of the year, the Company anticipates third quarter adjusted earnings per share of $2.00 to $2.50, inclusive of approximately $0.30 per share of M&M transaction amortization. Likewise, Celanese anticipates full year adjusted earnings per share of $9.00 to $10.00, inclusive of approximately $1.20 per share of M&M transaction amortization.
Reconciliations of forecasted non-GAAP measures such as adjusted earnings per share, adjusted EBIT or free cash flow to the equivalent U.S. GAAP measures (diluted earnings per share, net earnings (loss) attributable to Celanese Corporation and net cash provided by (used in) operations, respectively), are not available without unreasonable efforts because a forecast of Certain Items, such as mark-to-market pension gains/losses, and other items is not practical. For more information, see “Non-GAAP Financial Measures” below.
The Company’s prepared remarks related to the second quarter will be posted on its website at investors.celanese.com under Financial Information/Financial Document Library on August 7, 2023. Information about Non-US GAAP measures is included in a Non-US GAAP Financial Measures and Supplemental Information document posted on our investor relations website under Financial Information/Non-GAAP Financial Measures. See also “Non-GAAP Financial Measures” below.
