Celanese Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Celanese is a global chemicals and specialty materials company, reporting in U.S. dollars; financial statement amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $2,266 | $1,411 | $6,262 | $4,064 |
| Gross profit | $715 | $327 | $1,961 | $917 |
| Operating profit | $536 | $184 | $1,429 | $461 |
| Net earnings attributable to Celanese | $506 | $207 | $1,366 | $532 |
| Diluted earnings per share | $4.56 | $1.75 | $12.12 | $4.47 |
| Operating margin | 23.7% | 13.0% | 22.8% | 11.3% |
Q3 gross margin was approximately 31.6%, versus 23.2% a year earlier, calculated from reported gross profit and sales. Management attributed the sharp sales and profit growth mainly to higher prices and recovering demand; higher raw material, energy, logistics, and operating costs partly offset gains. Q3 sales rose 61%; nine-month sales rose 54%.
Cash flow and liquidity: Nine-month operating cash flow was $1,173, compared with $1,069 in 2020. Capital expenditures were $304; investing cash flow was $167, including $500 of proceeds from marketable securities sales. Financing cash outflow was $943, including $803 of share repurchases, $230 of dividends, and a $72 settlement of interest-rate swaps. Quarterly cash flow figures are not separately provided in the supplied filing text. Cash and equivalents were $1,340 at September 30, up from $955 at year-end 2020; $777 was held by foreign subsidiaries.
Debt: Total debt was $3,827, compared with $3,723 at year-end 2020; $103 was short-term borrowings and current installments, and $3,724 was long-term debt. The $1.25 billion revolving facility had no borrowings and $1.25 billion available. Celanese reported compliance with debt covenants.
Material changes and segment results
- Acetyl Chain: Q3 sales were $1,489, up 92%, and operating profit was $517, versus $121. Higher prices, reflecting strong demand and supply constraints, were the main driver; volume also increased.
- Engineered Materials: Q3 sales were $684, up 30%, while operating profit was $91, versus $84. Higher prices and volume were partly offset by raw material, energy, distribution, and operating costs.
- Acetate Tow: Q3 sales were $128, roughly flat, and operating profit declined to $12 from $30, primarily on higher energy and raw material costs.
- Q3 SG&A increased 56% to $165, including higher functional and incentive compensation spending. Nine-month operating profit also benefited from lower Engineered Materials turnaround costs compared with 2020.
Outlook, management commentary, and risks
- Management said demand had recovered to pre-pandemic levels in many regions and expected the impact of COVID-19 on customer demand to continue moderating, while noting uncertainty from resurgences, variants, supply chains, and labor availability and costs.
- Management expected 2021 capital expenditures of $500–$550 and believed available liquidity would cover operating, investment, and financial obligations for the foreseeable future. No earnings or revenue guidance was provided in the supplied filing text.
- Celanese agreed to acquire ExxonMobil’s Santoprene thermoplastic vulcanizates business for $1.15 billion in cash, with closing expected in Q4 2021 subject to regulatory approvals and customary conditions.
- Key operating exposures include raw material and energy price increases, ability to pass costs through to customers, logistics and supply constraints, plant utilization, labor costs, and demand cyclicality. Winter Storm Uri caused repair, restart, and operating costs in the first nine months.
- Tax authorities in the U.S., Netherlands, and Germany proposed transfer-pricing and income-allocation adjustments, potentially extending through 2019. Celanese said it had adequate tax provisions but noted an unfavorable outcome could materially affect results and cash flows in the period recorded.
- Environmental remediation liabilities were $59. The company disclosed $3.3 billion of unconditional purchase obligations extending through 2042 and certain legacy indemnities for which remaining exposure beyond accrued amounts could not be estimated. It said ordinary-course legal matters were not expected to be material overall.
Other notable items
During the first nine months, Celanese repurchased 5.3 million shares for approximately $800 and increased its repurchase authorization by $1.0 billion; $1.263 billion remained under authorization at September 30. It issued $400 of 1.400% notes due 2026 and €500 of 0.625% notes due 2028, and tendered €300 of 1.125% notes due 2023. A $9 refinancing expense was recorded in Q3. The company paid $100 in January 2021 to settle the European Commission investigation concerning past ethylene purchases. A $9 gain related to termination of the Ferrara Marconi lease was recorded in the nine-month period. The filing states disclosure controls were effective and reports no material change in internal control.
Important facts for investors to verify
- Whether strong Acetyl Chain pricing and demand persist, and whether higher input, energy, freight, and labor costs can be passed through.
- Completion timing, final economics, and funding for the $1.15 billion Santoprene acquisition.
- Cash conversion and working-capital needs: nine-month operating cash flow included an unfavorable $567 working-capital impact, primarily from receivables and inventory.
- Debt and capital allocation after substantial repurchases, dividends, and the acquisition; verify liquidity and covenant headroom as financing needs evolve.
- Potential tax-audit exposure, environmental and legacy indemnity obligations, and the company’s estimates for other contingencies.