Celanese Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited, compared with Q1 2016. Celanese is a global technology and specialty materials company. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Net sales | $1.471 billion | $1.404 billion | +4.8% |
| Gross profit / margin | $352 million / 23.9% | $390 million / 27.8% | Profit down $38 million |
| Operating profit / margin | $192 million / 13.1% | $287 million / 20.4% | Down $95 million |
| Net earnings attributable to Celanese | $183 million | $257 million | Down $74 million |
| Diluted EPS | $1.30 | $1.73 | Down $0.43 |
| Operating cash flow | $192 million | $287 million | Down $95 million |
| Capital expenditures | $62 million cash outflow | $70 million cash outflow | Down $8 million |
Cash and cash equivalents were $501 million at quarter-end, down from $638 million at December 31, 2016. Total debt was $2.958 billion, versus $3.008 billion at year-end; cash less total debt was approximately $2.457 billion. Current assets were $2.389 billion and current liabilities $1.015 billion. The company reported no borrowings on its $1.0 billion revolving credit facility and $58 million available under its receivables securitization facility. It was in compliance with debt covenants.
Material changes and segment trends
- Sales growth was led by Advanced Engineered Materials, up 39% to $487 million, reflecting SO.F.TER. acquisition sales and higher POM volume. Segment operating profit rose to $98 million, while margin declined to 20.1% from 25.1%, partly due to $23 million of higher plant spending.
- Consumer Specialties sales fell 11% to $218 million and operating profit fell to $68 million, mainly due to lower acetate tow price and volume.
- Industrial Specialties sales declined 3% to $245 million and operating profit fell to $25 million, primarily with lower sales.
- Acetyl Intermediates sales decreased 7% to $619 million and operating profit fell 76% to $27 million. Lower VAM and ethanol volumes outweighed higher pricing; the segment also absorbed a substantial Nanjing-related charge.
Outlook, commentary, and risks
- Management expected 2017 capital expenditures of $250 million to $300 million, mainly for growth investments in Advanced Engineered Materials and Acetyl Intermediates. It stated it expected sufficient resources to meet liquidity needs, including debt service, over the next 12 months. No specific earnings or revenue guidance is provided in the filing.
- The company recorded $55 million of other charges, including an estimated $53 million for plant/office closures after giving notice to terminate a key raw-material supply contract at its Nanjing, China ethanol unit. Disclosed components include a $27 million contract termination charge and an $18 million reduction to a non-income-tax receivable. The unit’s shutdown also contributed to lower ethanol volume.
- Operating profit was pressured by higher raw-material costs, particularly in Acetyl Intermediates, as well as the unusual charge. The effective tax rate rose to 23% from 19%, mainly because losses in certain jurisdictions received no tax benefit.
- Celanese signed an agreement to acquire Nilit Plastics, expected to close in Q2 2017 subject to approvals and other conditions; the company did not expect it to be material to 2017 results or financial position. SO.F.TER., acquired in December 2016, is included in Advanced Engineered Materials.
- Environmental remediation reserves were $63 million. At the Lower Passaic River site, the company estimated its allocable share of cleanup costs at less than 1% and did not expect it to be material. The company cited $2.0 billion of unconditional purchase obligations extending through 2036.
- The IRS proposed $192 million of pretax adjustments relating to intercompany charges for 2009–2010. Celanese said it considers the adjustments without merit and is defending its position; if wholly unsuccessful, it could consume up to $67 million of foreign tax credit carryforwards. Management did not believe other identified routine legal matters would be material.
- Key forward-looking risks include economic and industry cycles, raw-material and energy prices, ability to pass costs through, plant operations, competition, foreign exchange and interest rates, environmental regulation, litigation, and indebtedness.
Important facts for investors to verify
- Whether the Nanjing supplier-contract termination and related $53 million charge are fully reflected in reported results, and the unit’s ongoing operating status.
- Whether margin pressure from input costs and segment-specific demand, especially acetate tow and VAM/ethanol, continues in subsequent quarters.
- Execution, closing conditions, funding, and integration of the Nilit Plastics acquisition.
- Cash generation, planned $250–$300 million 2017 capital spending, share repurchases, and liquidity availability; $416 million of quarter-end cash was held by foreign subsidiaries.
- Developments in the IRS audit, environmental remediation matters, and the company’s substantial purchase commitments.