Business News

Celanese Corporation Reports Record Third Quarter Earnings Per Share; Raises Outlook for Full Year 2010 and 2011

Wednesday 27. October 2010 - Net sales were $1,506 million, up 15% from prior year period

Third quarter highlights:
Net sales were $1,506 million, up 15% from prior year period
Operating profit was $221 million versus $65 million in prior year period
Net earnings were $145 million versus $398 million in prior year period
Operating EBITDA was $286 million versus $240 million in prior year period
Diluted EPS from continuing operations was $0.93 versus $2.53 in prior year period
Adjusted EPS was $0.88 versus $0.58 in prior year period
Celanese Corporation (NYSE: CE), a leading global technology and specialty materials company, today reported third quarter 2010 net sales of $1,506 million, a 15 percent increase from the same period last year, primarily driven by higher volumes across all operating segments as global demand continued to recover from 2009 levels. The increase in net sales was also driven by higher pricing across most of the company’s businesses. Operating margins expanded compared with the prior year and operating profit increased to $221 million compared with $65 million in the prior year period. Third quarter 2009 results included a net $70 million of other charges and other adjustments, primarily associated with the closure of the company’s acetic acid and vinyl acetate monomer (VAM) production operations in Pardies, France, partially offset by the gain on sale of the company’s polyvinyl alcohol business that was divested in July 2009. Net earnings were $145 million compared with $398 million in the same period last year. Third quarter 2009 results included a benefit of approximately $382 million related to a deferred tax benefit associated with the release of certain income tax valuation allowances. Equity in net earnings and dividend income from the company’s strategic affiliates were $38 million, $1 million higher than the prior year period.
Adjusted earnings per share in the third quarter of 2010 increased to $0.88 from $0.58 in the same period last year. Adjusted earnings per share in the period are based on an effective tax rate of 20 percent and a diluted share count of 157.9 million. Operating EBITDA improved 19 percent in the third quarter of 2010 to $286 million from $240 million in the prior year period. Adjusted earnings per share and operating EBITDA excluded a net benefit of $33 million of other charges and other adjustments which included gains related to a reduction of legal reserves associated with litigation concerning certain discontinued plumbing products, insurance recoveries related to production outages in its EVA Performance Polymers business and a resolution of commercial disputes. Adjusted earnings per share also excluded $16 million of expense associated with the company’s debt refinancing transaction completed in September 2010.
“Our portfolio of technology and specialty materials businesses performed well in the quarter and our 2010 results have consistently demonstrated the earnings power of our businesses,” said David Weidman, chairman and chief executive officer. “Continued strong global demand accelerated the benefits of our customer-focused innovation efforts and the realization of sustainable productivity improvements across our businesses, resulting in another strong quarter of financial performance for Celanese and value creation for our shareholders.”
Recent Highlights
Fortron Industries LLC, a strategic affiliate of Celanese, announced that it will increase production at its Wilmington, N.C. plant to meet growing global demand for Fortron polyphenylene sulfide (PPS), a high-performance polymer used in demanding industrial applications. The Fortron Industries plant is the world’s largest linear PPS operation with a 15,000 metric ton annual capacity.
Concluded that it will consolidate and optimize its global acetate manufacturing capabilities with the closure of its acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom. Celanese intends to cease manufacturing operations at the site in the latter part of 2011. The company expects the project to cost between $80 million and $120 million, with annual cash savings of $40 million to $60 million.
Completed an amendment and extension of its existing senior secured credit facility as well as an issuance of $600 million of senior unsecured notes. The company used the proceeds from the sale of the notes and approximately $200 million of cash on hand to repay $800 million of borrowings under its term loan facility. These actions resulted in a reduction of the company’s previous $2.7 billion term loan facility maturing in 2014 to $2.5 billion of secured and unsecured debt with staggered maturities in 2014, 2016 and 2018.
Third Quarter Segment Overview
Advanced Engineered Materials
Advanced Engineered Materials experienced significant volume growth fueled by continued strong customer demand related to the global economic recovery and ongoing success in innovative application development. Net sales for the third quarter of 2010 were $271 million compared with $220 million in the same period last year, primarily driven by higher volumes on continued strong demand across all business lines. This quarter’s results also reflected higher value-in-use pricing for its high performance polymers, as well as sales related to the company’s recent acquisition. Operating profit in the current period increased to $63 million compared with $21 million in the same period last year. Third quarter 2010 results included a net gain of $22 million, primarily related to a reduction of legal reserves associated with litigation concerning certain discontinued plumbing products. Higher production volumes, including a planned inventory build for the relocation of Ticona’s business in Kelsterbach, Germany, and the benefits of successful pricing actions, more than offset higher raw material and other variable costs. Operating EBITDA, which excluded the gain and the benefit from the inventory build, was $90 million in the third quarter of 2010 compared with $73 million in the same period last year. Equity earnings from the Ibn Sina affiliate were $17 million in the third quarter of 2010, unchanged from the prior year period. Total equity earnings from the company’s Asian affiliates were $14 million, $3 million higher than last year, driven by strong demand in the Asia region. Overall earnings contributions from equity affiliates for the segment totaled $31 million in the current period compared with $28 million in the same period last year.
Consumer Specialties
Consumer Specialties continued to deliver strong financial performance as these businesses experienced an increase in global demand for their products. Net sales for the third quarter of 2010 were $288 million compared with $271 million in the same period last year, primarily driven by higher volumes in acetate products. Operating profit was $71 million compared with $52 million in the prior year period as margins expanded with the higher volumes and the benefits from the company’s fixed cost reduction efforts more than offsetting higher energy costs in the period. Operating EBITDA increased to $81 million from $68 million in the same period last year.
Industrial Specialties
Industrial Specialties delivered strong performance as application innovation and healthy demand in Europe and North America continued to drive volume growth. Net sales for the third quarter of 2010 were $276 million compared with $236 million in the prior year period, driven by higher volumes and increased pricing. The higher volumes were primarily attributed to growth and innovation efforts in the company’s emulsions business and volume recovery in its EVA performance polymers business following a production outage during the third quarter of 2009. The higher pricing was due to implemented price increases and favorable product mix which more than offset the impacts of currency. Operating profit was $50 million compared with $44 million in the same period last year. Third quarter 2010 results included adjustments of $25 million associated with insurance proceeds related to the EVA production outage in 2009. Third quarter 2009 results included a $34 million gain related to the company’s divestiture of its polyvinyl alcohol (PVOH) business in July 2009. Operating EBITDA, which excluded the insurance proceeds and gain related to the divestiture, was $36 million in the third quarter of 2010 compared with $29 million in the prior year period.
Acetyl Intermediates
Acetyl Intermediates delivered improved financial results as global demand for acetyl products continued to recover. Net sales for the third quarter of 2010 were $777 million compared with $666 million in the same period last year, primarily driven by higher volumes. The higher volumes were due to improved demand across all global regions and the availability of additional production capacity related to the company’s expansion of its acetic acid facility in Nanjing, China in late 2009. Net sales in the current period also benefited from higher pricing for all major acetyl derivative products. Operating profit in the third quarter of 2010 rose to $81 million from a loss of $30 million in the same period last year. Third quarter 2009 results included $87 million in other charges and other adjustments, primarily related to the closure of the company’s acetic acid and vinyl acetate monomer (VAM) production operations in Pardies, France. Higher volumes and pricing in the current quarter more than offset higher raw material costs in the period. Third quarter 2010 results also reflected the benefit from the company’s manufacturing realignment activities, primarily related to the closure of the Pardies, France operations. Operating EBITDA, which excluded other charges and other adjustments, was $110 million in the third quarter of 2010 compared with $87 million in the prior year period.
Taxes
The effective tax rate for continuing operations for the third quarter of 2010 was 23 percent versus negative 729 percent in the third quarter of 2009. The lower effective tax rate in 2009 was primarily due to a decrease in the valuation allowance on U.S. net deferred tax assets. Cash taxes paid were $104 million in the first nine months of 2010 compared with $21 million in the first nine months of 2009. The increase in cash taxes paid is primarily the result of increased earnings in 2010 and timing of tax refunds received. The tax rate for adjusted earnings per share was 20 percent in the first nine months of 2010 compared with 29 percent in the first six months of 2009 and 23 percent for the third quarter of 2009.
Equity and Cost Investments
Earnings from equity investments and dividends from cost investments, which are reflected in the company’s earnings and operating EBITDA, were $38 million in the third quarter of 2010 compared with $37 million in the same period last year. Equity and cost investment dividends, which are included in cash flows, were $29 million compared with $21 million in the same period last year.
The Ticona strategic affiliates in Asia reported earnings in equity investments of $14 million in the third quarter of 2010 compared with $11 million in the prior year period. Proportional affiliate EBITDA for the Asian affiliates was $34 million in the same period, $4 million higher than third quarter 2009 results, driven by strong performance in the region.
Equity in net earnings for Ticona’s Middle Eastern affiliates, which includes the company’s Ibn Sina affiliate, were $17 million in the third quarter of 2010, unchanged from the prior year period. Proportional affiliate EBITDA for the Middle Eastern affiliates was $23 million, $1 million lower than the prior year period.
The company’s total proportional affiliate EBITDA of equity investments was $73 million in the third quarter of 2010, $36 million more than reported in the company’s operating EBITDA. The company’s total proportional net debt of affiliates was $110 million as of September 30, 2010.
Cash Flow
During the first nine months of 2010, the company generated $363 million in cash from operating activities, $45 million lower than the same period last year, as higher trade working capital and higher cash taxes more than offset the increased earnings. The increase in trade working capital was driven by the higher sales associated with the global economic recovery. Additionally, results during the first nine months of 2010 included a cash outflow of $87 million, $53 million higher than the prior year period, primarily associated with the company’s previously announced productivity projects.
Net cash used in investing activities during the first nine months of 2010 was $381 million, compared with a cash inflow of $191 million in the prior year period. The 2010 results included $219 million of capital expenditures related to the relocation of Ticona’s business in Kelsterbach, Germany, and a cash outflow of $46 million related to the company’s acquisition of the Zenite LCP and Thermx PCT product lines from DuPont Performance Polymers. Results for the same period in 2009 included an advance receipt of $412 million related to the Ticona Kelsterbach plant relocation and net cash of $168 million received from the sale of the company’s PVOH business.
Net cash used in financing activities during the first nine months of 2010 was $332 million compared with $52 million in the prior year period. During this period, the company repaid a net of $248 million of long-term debt, repurchased $41 million of shares, paid $23 million of dividends and paid $24 million of debt refinancing costs.
Net debt at the end of the third quarter of 2010 was $2,387 million, $140 million higher than the prior year period.
During the third quarter, the company completed an amendment to its senior secured credit facility. The amendment extended the maturity of a majority of the company’s term loans to October 2016 and the maturity of its revolving credit facility to October 2015, in each case a two and one-half year maturity extension. The company’s credit facility now consists of $417 million of US dollar-denominated and €69 million of Euro-denominated term loans due 2014, $1,140 million of US dollar-denominated and €204 million of Euro-denominated term loans due 2016, a $600 million revolving credit facility terminating in 2015, and a $228 million credit-linked revolving facility terminating in 2014. The extended facilities are subject to modified interest rates. During the third quarter of 2010, the company also announced the issuance of $600 million of senior unsecured notes due October 15, 2018. In connection with the amendment, the company used the proceeds from the sale of the notes and approximately $200 million of cash on hand to repay $800 million of its term loans in the period.
“These transactions exemplify Celanese’s ongoing strategy of maintaining a flexible, low cost and stable capital structure,” said Steven Sterin, senior vice president and chief financial officer. “By taking advantage of strong credit market conditions, we were able to significantly improve our long term financial position with only a modest impact in the short term.”
Outlook
Based on the strength of its year-to-date performance, its expectations for continued healthy yet seasonal demand in the fourth quarter and its confidence in its earnings growth programs, the company raised its outlook for the full year 2010. The company now expects full year 2010 adjusted earnings per share to be at least $1.55 higher and operating EBITDA to be at least $270 million higher than 2009 results. The company had previously expected 2010 adjusted earnings per share and operating EBITDA to be at least $1.40 and $260 million higher than 2009, respectively.
In addition to the improved outlook for 2010, the company also confirmed that its 2011 operating EBITDA is expected to be at least $150 million higher than its revised outlook for 2010. The company also expects its full year 2011 adjusted earnings per share to be at least $0.60 per share higher than its revised outlook for 2010. The expected increase in adjusted earnings per share includes the impact of the company’s recent debt transactions and other announced strategic activities.
“Though we expect normal seasonality in the fourth quarter, we continue to see healthy demand across all of our business lines,” said Weidman. “Looking ahead to 2011, we are confident that our strong portfolio of technology and specialty materials businesses, coupled with our ongoing productivity initiatives, will enable us to maintain the positive earnings momentum we have demonstrated throughout the current year.”