Celanese Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited consolidated results compared with Q1 2017, with prior-year pension-cost presentation adjusted. Celanese is a global technology and specialty materials company.
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Net sales | $1.851 billion | $1.471 billion | +$380 million; +25.8% |
| Gross profit | $515 million | $350 million | +$165 million |
| Operating profit | $343 million | $170 million | +$173 million |
| Operating margin | 18.5% | 11.6% | +6.9 percentage points |
| Net earnings attributable to Celanese | $363 million | $183 million | +$180 million |
| Diluted EPS | $2.66 | $1.30 | +$1.36 |
| Cash from operating activities | $143 million | $192 million | -$49 million |
| Capital expenditures | $86 million | $62 million | +$24 million |
Sales growth reflected higher acetyl pricing, increased Engineered Materials volume—including Nilit and Omni acquisitions—and favorable currency. The effective tax rate fell to 15% from 23%, primarily reflecting the U.S. tax-law change. Q1 2018 included a $2 million loss from discontinued operations.
Segments
- Engineered Materials: Sales $665 million, up 29%; operating profit $127 million, up 22%. Acquisition-related and base-business volume growth contributed, while operating margin eased to 19.1% from 20.2% amid higher plant and raw-material costs.
- Acetate Tow: Sales $168 million, down 12%; operating profit $46 million, down 26%. Lower volume and pricing reflected weaker global industry utilization.
- Industrial Specialties: Sales $274 million, up 12%; operating profit $23 million, down 8%. Higher pricing and currency were offset by raw-material costs, particularly vinyl acetate monomer.
- Acetyl Intermediates: Sales $871 million, up 41%; operating profit $231 million versus $27 million. Higher pricing, volume and currency helped; the prior-year comparison included $53 million of plant-closure and related charges that did not recur.
Financial position and liquidity
Cash and cash equivalents were $490 million at March 31, down from $576 million at year-end; $343 million was held by foreign subsidiaries. Total debt was $3.768 billion, up from $3.641 billion. Cash less total debt was approximately negative $3.278 billion. Current assets were $3.006 billion and current liabilities $1.602 billion. Equity totaled $3.665 billion.
Operating cash flow declined mainly because trade working capital used cash, including a $153 million unfavorable working-capital effect, largely from higher receivables, as well as higher cash taxes and incentive compensation. Investing cash outflow was $235 million, including $144 million for Omni and higher capital spending. Financing cash outflow was $2 million, compared with $270 million in Q1 2017, chiefly because there were no comparable share repurchases and net short-term borrowings increased.
Available borrowing was $803 million under the revolving credit facility and $3 million under the receivables securitization facility. The company said it expected resources to meet liquidity needs, including debt service, for the next 12 months; it was in compliance with debt covenants. Management projected 2018 capital expenditures of $300 million to $350 million, mainly for growth investments. No earnings or sales guidance was provided in the supplied filing text.
Material developments, risks and contingencies
- Celanese acquired Omni Plastics on February 1 for net assets acquired of $146 million; preliminary allocation included $84 million goodwill and $35 million intangible assets. The business joined Engineered Materials.
- The company and Blackstone abandoned a proposed acetate tow joint venture on March 19 after failing to agree with the European Commission on acceptable conditions.
- Tax estimates under the 2017 U.S. tax legislation remained provisional. Celanese recorded a $24 million increase in valuation allowances on foreign tax credits during the quarter and said estimates may change as information and guidance develop.
- U.S. tax audits for 2009–2010 and 2011–2012 included proposed pretax adjustments of $192 million and $198 million, respectively. Management disputed the adjustments and is defending its position.
- A European Commission competition investigation concerns certain ethylene purchases. The company could not determine the outcome or any potential fine.
- Environmental remediation reserves were $75 million. For the Lower Passaic River Superfund matter, the company estimated its allocable share at less than 1% of cleanup costs and said it did not expect a material effect; it noted outcomes could affect results or cash flow in a given period.
- Unconditional purchase obligations were $1.7 billion through 2036. The company reported no material off-balance-sheet arrangements and no material changes to its risk factors.
- The board’s quarterly dividend was $0.46 per share. The company paid $63 million in dividends in the quarter and made no program share repurchases.
Most important facts for investors to verify
- Whether acetyl pricing and utilization, particularly in Acetyl Intermediates, remain supportive and whether higher raw-material costs can be passed through.
- Whether working-capital investment reverses and operating cash flow improves after the Q1 receivables build.
- Omni integration and acquisition returns, alongside the expected $300 million–$350 million 2018 capital expenditure program.
- Final effects of the U.S. tax law and outcomes of the tax audits and European Commission investigation.
- Debt, borrowing availability, and liquidity against significant purchase obligations and environmental or other contingencies.