LyondellBasell Industries N.V. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unless otherwise noted, amounts are in U.S. dollars. LyondellBasell is a global chemicals and polymers manufacturer, refiner, and technology licensor.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue | $12.250 billion | $12.700 billion | -4% |
| Operating income | $812 million | $2.248 billion | -64% |
| Net income attributable to shareholders | $570 million | $1.760 billion | -68% |
| Diluted EPS | $1.75 | $5.25 | -67% |
| Segment EBITDA | $1.108 billion | $2.691 billion | -59% |
Q3 operating and net margins were approximately 6.6% and 4.7%, respectively, versus 17.7% and 13.9% a year earlier. Management attributed the weaker quarter to higher energy costs, new supply, lower demand and margin compression. Revenue fell 17% sequentially from Q2; operating income declined 62%.
For the first nine months, revenue rose 21% to $40.245 billion, while operating income fell 21% to $4.614 billion, net income attributable to shareholders declined 28% to $3.531 billion, and diluted EPS decreased to $10.74 from $14.57. Higher feedstock and energy costs, weaker O&P results and lower equity earnings more than offset stronger refining and I&D results.
Cash flow, balance sheet and capital allocation
- Nine-month operating cash flow was $4.515 billion, compared with $4.616 billion in 2021. Q3 operating cash flow was $1.414 billion.
- Capital expenditures were $1.417 billion for the nine months, versus $1.285 billion a year earlier.
- At September 30, cash and cash equivalents were $1.480 billion. Total debt, including current maturities, was $11.316 billion; current and short-term debt totaled $871 million. The company reported $3.850 billion of unused credit-facility availability and compliance with debt covenants.
- Nine-month financing included $2.859 billion in common dividends, including a $5.20-per-share special dividend, and $420 million in share repurchases. The quarterly dividend was $1.19 per share.
- Inventories were $5.153 billion, up from $4.901 billion at year-end 2021. Total equity was $12.205 billion.
Business developments, outlook and risks
- Management said persistent inflation, high energy costs and weaker seasonal demand were likely to cause further Q4 margin compression, with challenging European and Asian markets. October demand in consumer packaging, oxyfuels and refining remained strong. Expected Q4 average operating rates: 75% for O&P Americas, 60% for European O&P EAI assets and 75% for I&D.
- The company postponed restarting its French ethylene cracker until Q1 2023 and reduced global operating rates to match weaker demand. China remained weak amid zero-COVID measures and tepid growth.
- The Houston refinery is planned to cease operations by the end of 2023. Q3 included $36 million of accelerated lease amortization and $48 million of personnel costs; recorded asset-retirement obligations were $121 million. Management expects additional charges of approximately $200–$300 million for lease amortization, $50–$80 million for personnel, and $50–$100 million for other costs, recognized over time.
- Management launched a value-enhancement program targeting $750 million of recurring annual EBITDA by the end of 2025; delivery is uncertain and depends on successful execution.
- Environmental remediation liabilities were $122 million. The company said additional losses are reasonably possible but could not estimate an amount or range. Management did not expect pending litigation to have a material adverse effect. A 2013 flaring matter at the Morris, Illinois facility was settled in 2022 for a $324,000 penalty and required monitoring and control equipment.
- Key stated risks include volatile commodity and energy prices, oversupply and cyclical demand, operational interruptions, foreign exchange exposure, project execution, tax and regulatory changes, and the cost and timing of the Houston refinery shutdown. Management reported no material change in previously disclosed risk factors.
Most important facts for investors to verify
- Whether margins and earnings stabilize after the sharp Q3 decline, particularly in O&P Americas and O&P EAI.
- Progress against Q4 operating-rate expectations and the $750 million annual EBITDA value-enhancement target.
- Actual shutdown schedule and total charges, retirement obligations and other liabilities associated with the Houston refinery exit.
- Cash generation, working-capital needs, capital spending and the sustainability of dividends and share repurchases relative to debt and liquidity.
- Potential additional environmental remediation losses, which the filing says cannot currently be estimated.