Celanese Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited, compared with Q1 2019. Celanese is a global chemical and specialty materials company operating through Engineered Materials, Acetate Tow and Acetyl Chain segments.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net sales | $1.460 billion | $1.687 billion |
| Operating profit | $194 million | $320 million |
| Operating margin | 13.3% | 19.0% |
| Net earnings attributable to Celanese | $218 million | $337 million |
| Diluted EPS | $1.82 | $2.63 |
| Operating cash flow | $259 million | $307 million |
| Capital expenditures | $119 million | $79 million |
- Sales fell 13%, with volume down 7%, price down 6% and currency down 1%. Operating profit declined 39%; lower sales and higher segment spending were partly offset by lower raw-material costs.
- Gross profit was $348 million, down $105 million. The effective tax rate increased to 22% from 12%, mainly due to offshore functional-currency differences and earnings mix.
- Cash and equivalents were $570 million at quarter-end, versus $463 million at year-end 2019. Current assets were $2.855 billion and current liabilities $1.928 billion.
- Total debt was $4.105 billion, up from $3.905 billion at year-end; cash-adjusted debt was approximately $3.535 billion, a derived figure. Long-term debt was $3.356 billion. The company reported compliance with debt covenants.
- Operating cash flow less capital expenditures was $140 million, compared with $228 million in Q1 2019, calculated from reported figures.
Segment performance and material changes
- Engineered Materials: Sales of $563 million, down 15%; operating profit of $102 million, down 29%. Lower volume, pricing and currency, plus higher maintenance and turnaround costs, weighed on results; lower raw-material costs provided an offset.
- Acetate Tow: Sales of $129 million, down 22%; operating profit of $27 million, down 33%. Lower acetate flake and tow volumes and lower tow pricing were the main pressures.
- Acetyl Chain: Sales of $799 million, down 10%; operating profit of $135 million, down 33%. Lower pricing and demand, including COVID-19 impacts, as well as higher Fairway Methanol turnaround and operating costs reduced results; lower input costs partly offset the decline.
- Net earnings included a $7 million loss from discontinued operations. Q1 2020 also included $6 million of restructuring charges and a $4 million long-lived asset impairment related to closure of manufacturing operations in Lebanon, Tennessee. Q1 2019 included a $15 million commercial-dispute gain in Engineered Materials.
Liquidity, outlook and risks
- Celanese reported $1.003 billion available under its revolving credit facility and $5 million available under its receivables securitization facility. The securitization facility expires in July 2020. The company said it expected to meet liquidity needs, including debt service, for the next 12 months.
- Management forecast 2020 capital expenditures of $325 million to $350 million, primarily for growth and productivity projects.
- Management said COVID-19 weakened customer demand, particularly in the Western Hemisphere, and negatively affected Q1 results, with the largest segment impact in Acetyl Chain. Some plants operated at reduced rates to manage costs and inventories; most facilities remained operational.
- The company expected negative operational impacts through at least Q2 2020 and anticipated demand and results could begin to normalize in the second half, absent a resurgence of COVID-19. This outlook was expressly uncertain and dependent on evolving conditions.
- Key risks include pandemic-related demand and supply disruptions, customer payment and liquidity access, potential covenant pressure in a severe downturn, volatile raw-material and energy prices, foreign exchange, competition, and environmental and legal exposures.
- Environmental remediation liabilities were $64 million. Unconditional purchase obligations were $1.1 billion through 2036. The company had an $89 million reserve recorded in 2019 for a European Commission investigation into certain past ethylene purchases. It said its estimated share of Lower Passaic River cleanup costs was less than 1% and not expected to be material.
- The board declared a $0.62-per-share quarterly dividend in April 2020, payable May 7. Q1 share repurchases were $150 million in treasury-stock purchases, with related cash outflow reported as $167 million.
Important facts for investors to verify
- How quickly COVID-related demand and customer activity recovered after Q1, particularly in automotive, electronics, construction and Acetyl Chain markets.
- Whether the July 2020 receivables securitization facility was renewed, replaced or repaid, and the company’s subsequent borrowing and liquidity position.
- Progress against the $325 million to $350 million 2020 capital-spending outlook and the effect on free cash flow.
- Whether debt levels, covenant headroom and cash generation changed materially as pandemic conditions evolved.
- Developments in the European Commission investigation, environmental obligations and other legal contingencies; ultimate amounts or timing are not clear from this filing.