Celanese Corporation — Q2 2023 Form 10-Q
Business context and period. Celanese is a global chemicals and specialty materials company with Engineered Materials and Acetyl Chain segments. This filing covers the quarter and six months ended June 30, 2023; comparisons are with the same 2022 periods. Results include the acquired majority of DuPont’s Mobility & Materials business, purchased in November 2022.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $2.795bn | $2.486bn | $5.648bn | $5.024bn |
| Gross profit | $686m | $705m | $1.317bn | $1.450bn |
| Operating profit | $335m | $483m | $586m | $1.014bn |
| Operating margin | 12.0% | 19.4% | 10.4% | 20.2% |
| Net earnings attributable to Celanese | $220m | $434m | $311m | $936m |
| Diluted EPS | $2.01 | $3.98 | $2.85 | $8.57 |
| Interest expense | $182m | $48m | $364m | $83m |
- Q2 gross margin was approximately 24.5%, versus 28.4% a year earlier; the six-month figures were approximately 23.3% versus 28.9%.
- Six-month operating cash flow was $666m, down from $811m. Capital expenditures were $309m, versus $261m, leaving approximately $357m of operating cash flow after capital expenditures.
- At June 30, cash and cash equivalents were $1.296bn, total debt was $14.396bn, and net debt was approximately $13.1bn. Current liabilities were $3.922bn and current assets $6.252bn.
- Cash declined $212m from year-end 2022. The company reported $1.75bn available under its U.S. revolving facility and $34m under its China facility. It remained in compliance with financing covenants.
Material changes versus the prior period
- Consolidated Q2 sales rose 12%, primarily reflecting acquired M&M volume and the KEPCO joint-venture restructuring; operating profit fell 31% and attributable net earnings fell about 49%.
- Engineered Materials Q2 sales increased 67% to $1.585bn, but operating profit declined 5% to $158m and margin fell to 10.0% from 17.5%. The company cited acquisition-related raw-material costs and $187m of higher spending related to M&M.
- Acetyl Chain Q2 sales declined 21% to $1.233bn and operating profit declined 31% to $295m, largely due to weaker pricing and demand. Lower raw-material and sourcing costs partly offset the sales decline.
- Higher interest expense, acquisition-related amortization and restructuring charges also weighed on earnings. Six-month restructuring charges were $33m, primarily employee termination benefits.
Outlook, commentary, risks and unusual items
- Management described ongoing destocking, volatile demand and competitive pricing pressure across several end markets, especially amid weaker conditions in Asia and lower demand in Europe. It expected demand and destocking challenges to persist, with pricing pressure partly offset by improving input costs. No specific earnings or revenue guidance was provided.
- Management expects 2023 capital expenditures of approximately $500m. The Bay City, Texas VAM expansion is temporarily on hold; other named capacity and productivity projects were described as progressing or on schedule.
- Following the $11.0bn M&M acquisition, the company said it is prioritizing rapid deleveraging and maintaining its investment-grade rating; share repurchases are paused. It expects operating cash, acquisition synergies and cost reductions to support deleveraging, while noting that cash generation is not assured.
- A definitive agreement was signed to contribute the food ingredients business to a Nutrinova joint venture, retain a 30% stake and sell Mitsui the remaining 70% for $473m. Closing was expected in the second half of 2023, subject to regulatory approvals; the business was classified as held for sale at June 30.
- Six-month unconditional purchase obligations totaled $4.1bn, with $355m scheduled for payment in 2023. Management said contractual obligations and debt service are significant but expected available resources to meet liquidity needs for the next 12 months.
- Environmental matters include the Lower Passaic River cleanup settlement, subject to public comment and court approval. Celanese said its proposed share of the collective $150m settlement was not material and estimated its ultimate allocable share at less than 1%. Tax audits remain ongoing; management believes provisions are adequate but states that an adverse resolution could materially affect results or cash flows in the period recorded.
Important facts for investors to verify
- Whether M&M integration, spending and synergies meet management’s expectations and support debt reduction.
- Whether demand, destocking, pricing and input-cost trends improve, particularly in Acetyl Chain and major end markets.
- Nutrinova transaction approval, closing timing and proceeds, and the financial impact of retaining a 30% interest.
- Debt maturities, borrowing costs, covenant headroom and the company’s ability to sustain cash generation and dividends.
- Resolution of the Passaic River settlement and tax audits, along with any material changes in environmental or other contingencies.