Celanese Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited fourth-quarter results. Celanese is a global chemical and specialty materials producer operating through Engineered Materials, Acetate Tow and the Acetyl Chain.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $6.297 billion | $7.155 billion |
| Gross profit | $1.606 billion | $1.972 billion |
| Operating profit | $834 million | $1.334 billion |
| Operating margin | 13.2% | 18.6% |
| Net earnings attributable to Celanese | $852 million | $1.207 billion |
| Diluted EPS, continuing operations | $6.89 | $8.95 |
| Operating cash flow | $1.454 billion | $1.558 billion |
| Cash capital expenditures | $370 million | $337 million |
| Total debt at year-end | $3.905 billion | $3.531 billion |
| Cash and cash equivalents at year-end | $463 million | $439 million |
Cash less total debt was approximately $3.442 billion of net debt, calculated from reported balances. Celanese reported $978 million available on its revolving credit facility and $5 million available under its receivables securitization facility. It stated that resources were expected to cover liquidity needs, including debt service, for the next 12 months.
Fourth quarter: Net sales were $1.432 billion versus $1.689 billion in Q4 2018; operating profit was $68 million versus $259 million. Continuing-operations diluted EPS was $0.35; net earnings attributable to Celanese were $43 million and net EPS was $0.36.
Segment results and changes versus prior year
- Engineered Materials: Sales fell 8% to $2.386 billion, with lower volume amid slower global conditions and customer destocking, plus unfavorable currency. Operating profit decreased 3% to $446 million; margin rose to 18.7% from 17.7%.
- Acetate Tow: Sales declined 2% to $636 million on lower industry utilization. Operating profit fell to $52 million from $130 million, mainly due to an $83 million impairment tied to the Ocotlán, Mexico closure.
- Acetyl Chain: Sales declined 16.1% to $3.392 billion, primarily on lower pricing, weaker demand and unfavorable currency. Operating profit fell 33.8% to $678 million; lower raw-material costs partly offset sales pressure and fire-related costs.
Company-wide sales decreased 12%, reflecting lower Acetyl Chain pricing, unfavorable currency and reduced Engineered Materials volume. Operating profit decreased 37.5%. The effective tax rate fell to 13% from 19%, largely due to valuation-allowance changes and higher projected use of foreign tax credits.
Cash, debt and capital allocation
- Operating cash flow declined $104 million to $1.454 billion; favorable trade working capital of $303 million partly offset lower earnings.
- Investing cash outflow was $493 million, including $91 million for Next Polymers. Financing cash outflow was $935 million.
- Celanese repurchased $1.0 billion of shares and paid $300 million in common dividends during 2019. The quarterly dividend increased from $0.54 to $0.62 per share.
- Debt rose by $374 million year over year. The company issued $500 million of 3.5% notes due 2024 and redeemed its 3.25% notes due 2019. It reported compliance with debt covenants.
Outlook, commentary and material risks
- Management expected approximately $500 million in 2020 capital expenditures, mainly for growth opportunities in Engineered Materials and Acetyl Chain. No earnings or revenue guidance was provided in the supplied filing text.
- A September 2019 fire damaged the carbon monoxide unit at Clear Lake, Texas, disrupting acetic acid and VAM production and reducing sales and profit. The company recorded approximately $39 million of related depreciation, overhead, cleanup and repair costs.
- The Ocotlán acetate flake closure generated $104 million of 2019 exit and shutdown costs, including the $83 million impairment. Approximately $12 million of additional costs were expected through Q1 2021.
- Celanese recorded an $89 million reserve related to a European Commission competition-law investigation concerning certain past ethylene purchases; the investigation was ongoing. It also recorded losses on customer settlements and restructuring costs.
- Key risks include cyclical and weaker end-market demand, raw-material and energy price volatility, production interruptions, foreign exchange, environmental and legal liabilities, changing tax rules, and debt-service and refinancing exposure. The filing identified the coronavirus outbreak as a potential disruption risk but provided no quantified impact.
- After year-end, Celanese agreed to acquire Nouryon’s Elotex redispersible polymer powders business, subject to regulatory approval, with an expected Q2 2020 close. The company said it did not expect the deal to be material to 2020 results or financial position.
Important facts for investors to verify
- Whether demand, pricing and utilization recover across the Acetyl Chain and Engineered Materials businesses, and how customer destocking evolves.
- Clear Lake repair progress, production recovery, and any further costs or operational effects.
- Final outcomes and possible additional exposure from the European Commission investigation and other legal or environmental matters.
- Execution and total costs of the Ocotlán closure, and delivery of planned 2020 capital projects.
- Cash generation, debt maturities, revolving-facility availability and the sustainability of share repurchases and dividends.
- Realizability of foreign tax credit carryforwards and whether tax assumptions or audits materially change the effective tax rate.