Celanese Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Celanese is a global chemicals and specialty materials producer, with Engineered Materials, Acetate Tow and Acetyl Chain segments. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2.301B | $2.266B | $7.325B | $6.262B |
| Operating profit | $308M | $536M | $1.322B | $1.429B |
| Operating margin | 13.4% | 23.7% | 18.0% | 22.8% |
| Net earnings attributable to Celanese | $191M | $506M | $1.127B | $1.366B |
| Diluted EPS | $1.75 | $4.56 | $10.32 | $12.12 |
- Q3 gross profit fell to $546M from $715M; higher raw-material and energy costs, weaker Acetyl Chain sales and increased spending weighed on operating results. Q3 interest expense rose to $154M from $21M, reflecting the financing undertaken for the planned acquisition.
- Nine-month operating cash flow was $1.278B, versus $1.173B a year earlier. Capital expenditures were $400M; investing cash outflow was $428M.
- Cash and cash equivalents were $9.671B at September 30, versus $536M at year-end 2021. The filing notes that cash included $2.9B of U.S. Treasury bills. The large increase chiefly reflects acquisition financing, rather than operating cash generation.
- Total debt was $12.337B, versus $3.967B at year-end 2021. Celanese had $1.75B available on its revolving credit facility at quarter-end and reported compliance with debt covenants.
Material changes and business drivers
- Q3 sales increased 2%, but operating profit fell 43%. Pricing gains and Santoprene-related volume in Engineered Materials were offset by cost inflation, lower Acetyl Chain volume and unfavorable currency effects.
- For the first nine months, sales rose 17%, mainly on higher pricing and Engineered Materials volume. Operating profit declined 7% as higher raw-material, energy and operating costs absorbed much of the sales growth.
- Q3 Engineered Materials sales rose 36% year over year and operating profit rose 25%; Acetyl Chain sales fell 14% and operating profit fell 39%. Acetate Tow operating profit was a $3M loss, compared with $12M profit.
- The effective tax rate was 40% in Q3 versus 16% a year earlier, primarily due to higher valuation allowances on U.S. foreign tax credits and additional tax reserves. The nine-month rates were 24% and 18%, respectively.
Acquisition, outlook and risks
- Celanese completed its $11.0B acquisition of most of DuPont’s Mobility & Materials business on November 1, 2022, after the reporting date. The purchase was funded with acquisition notes, term-loan financing and cash on hand. The company reported that the acquired business was expected to underperform prior expectations for the remainder of 2022; timing and realization of synergies and performance improvements remain uncertain.
- Management cited continued inflation and supply disruptions in raw materials, energy, logistics and labor; weaker demand and customer destocking in some regions; and expected acetyls pricing to moderate toward more normal levels through year-end 2022. No full-year earnings guidance is provided in the supplied filing text.
- Management expected 2022 capital expenditures of approximately $550M, paused share repurchases and described rapid deleveraging and maintaining investment-grade credit ratings as priorities. It said operating cash flows, acquisition synergies and cost actions are expected to support debt reduction.
- Key risks include higher leverage and interest expense, acquisition integration and execution, raw-material and energy price volatility, demand and pricing cycles, currency movements, geopolitical and supply-chain disruption, and potential tax, environmental and legal exposures. The filing also reports $4.0B of unconditional purchase obligations extending through 2042.
- Notable items include $15M of other charges in the first nine months, including impairment and restructuring costs associated in part with the planned closure of the Silao, Mexico facility. Celanese expects approximately $13M of additional Silao exit costs through 2023. A methanol pipeline leak at Bishop, Texas was contained and repaired; a reserve was recorded, and the company did not expect a material financial impact.
Investor facts to verify
- Post-close M&M Business results, integration costs, realized synergies and the path to deleveraging.
- Whether pricing and cost actions can offset continued inflation, energy expenses and weaker demand, particularly in the Acetyl Chain.
- Cash available after the acquisition, debt balances, interest costs, covenant headroom and credit-rating implications.
- Developments in the joint tax audit and other tax examinations, environmental matters and remaining Silao closure costs.