Celanese Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. Celanese is a global chemical and specialty materials company. Results include the majority of DuPont’s Mobility & Materials business (M&M), acquired in November 2022, so year-over-year growth reflects the acquisition as well as underlying business changes. Amounts below are in millions of dollars except per-share data and percentages.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Net sales | $2,853 | $2,538 |
| Gross profit / gross margin | $631 / 22.1% | $745 / 29.4% |
| Operating profit / operating margin | $251 / 8.8% | $531 / 20.9% |
| Net earnings attributable to Celanese | $91 | $502 |
| Diluted EPS | $0.83 | $4.61 |
| Cash from operating activities | $(96) | $316 |
| Capital expenditures | $164 cash outflow | $137 cash outflow |
| Cash and cash equivalents | $1,167 at March 31, 2023 | $1,508 at December 31, 2022 |
| Total debt | $14,782 at March 31, 2023 | $14,679 at December 31, 2022 |
Net sales rose $315 million, or 12%, but operating profit fell $280 million and attributable net earnings fell $411 million. Interest expense increased to $182 million from $35 million, reflecting acquisition-related borrowing. The effective tax rate was 21%, versus 18%. Cash declined $341 million during the quarter; operating cash flow was negative, principally reflecting lower earnings and a $243 million increase in cash interest paid. Capital spending exceeded operating cash flow by $260 million in the quarter.
At quarter-end, current assets were $6,448 million and current liabilities were $3,851 million. Celanese reported $1.75 billion available under its U.S. revolving credit facility and $37 million under its China facility. Management stated that available liquidity should meet operational, investment, and financial obligations for the foreseeable future and the next 12 months. The company reported compliance with material debt covenants.
Material changes and segment performance
- Engineered Materials: Sales increased 79% to $1,630 million, primarily reflecting the M&M acquisition and the KEPCO restructuring. Segment operating profit declined to $112 million from $124 million; higher acquisition-related raw-material costs and spending, including $187 million of spending, offset higher sales. Segment margin was 6.9%, compared with 13.6%.
- Acetyl Chain: Sales fell 24% to $1,250 million and operating profit fell 45% to $278 million. Weaker pricing, particularly for VAM and acid, and lower volumes amid weaker demand—especially in Europe—drove the decline. Lower raw-material and sourcing costs partly offset the sales decline. Segment margin was 22.2%, versus 30.4%.
- Consolidated sales growth was driven by acquisition-related and other higher Engineered Materials volume. Acetyl Chain pricing and volume declined; total-company price and currency effects were also negative.
- SG&A rose 64% to $285 million, primarily due to M&M-related costs. Depreciation and amortization increased to $172 million from $106 million. The company recorded $23 million of restructuring charges, primarily employee termination benefits tied to optimization projects.
Outlook, management commentary, and risks
- Management described demand as beginning to recover, with improvement in some regions of Europe and Asia offset by continued destocking and lower consumer activity in the Americas. It expected demand recovery, lower inventories, and improvement in sourcing costs and inflationary pressures over the remainder of 2023. No specific earnings or sales guidance was provided in the filing text.
- Expected 2023 capital expenditures were approximately $500 million. The filing describes planned capacity and productivity projects, including the Clear Lake acetic acid expansion, scheduled for mechanical completion in Q2 and start-up in Q3.
- Following the $11.0 billion M&M acquisition, Celanese said leverage had increased and that it was committed to rapid deleveraging and maintaining an investment-grade rating. It paused share repurchases and was evaluating additional cash-generation opportunities, potentially including asset or business-line dispositions or monetizations.
- The quarterly dividend was declared at $0.70 per share, totaling approximately $76 million, payable May 15, 2023. No shares were repurchased in Q1.
- Key stated risks include cyclical end-market demand, raw-material and energy price volatility, ability to pass through costs, acquisition integration and realization of expected synergies, elevated leverage and refinancing risk, foreign exchange and interest rates, supply-chain disruption, and environmental, tax, and legal matters.
- Environmental remediation liabilities totaled $64 million. The proposed Passaic River Consent Decree remained subject to public comment and court approval; the company said its proposed share was not material and its estimated allocable share was less than 1%. The company also had $4.2 billion of unconditional purchase obligations, including $532 million scheduled for 2023.
- Tax audits are ongoing in several jurisdictions. Management said provisions were adequate, but cautioned that an unfavorable resolution could require adjustments that may be material in the periods recorded. The company also disclosed that acquisition purchase-price allocation remained preliminary.
Most important facts for investors to verify
- How much of Engineered Materials’ sales growth and future earnings contribution is attributable to M&M, and whether integration benefits and synergies materialize as expected.
- Whether demand, pricing, and margins recover, particularly in the Acetyl Chain and Americas markets, and whether raw-material cost changes are passed through to customers.
- Cash generation, debt reduction, interest costs, covenant headroom, and the company’s ability to maintain its investment-grade rating while funding capital spending and dividends.
- Execution and timing of the approximately $500 million 2023 capital program and other announced capacity projects.
- Final M&M purchase-price allocation, tax audit outcomes, and developments in environmental and other contingencies.