Celanese Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 8, 2023. Celanese is a global chemicals and specialty materials company. Results are unaudited and presented under U.S. GAAP.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Net sales | $2.723 billion | $2.301 billion | $8.371 billion | $7.325 billion |
| Gross profit | $673 million | $546 million | $1.990 billion | $1.996 billion |
| Operating profit | $842 million | $308 million | $1.428 billion | $1.322 billion |
| Net earnings attributable to Celanese | $951 million | $191 million | $1.262 billion | $1.127 billion |
| Diluted earnings per share | $8.69 | $1.75 | $11.54 | $10.32 |
- Q3 gross margin was approximately 24.7%, versus 23.7% a year earlier; nine-month gross margin was approximately 23.8%, versus 27.3%. Reported operating margin was 30.9% and 17.1%, respectively, compared with 13.4% and 18.0% in the prior-year periods.
- Reported operating profit included a $508 million gain from establishing the Nutrinova food ingredients joint venture. Q3 earnings also benefited from a $236 million income tax benefit; the nine-month tax benefit was $215 million. The tax benefits included $293 million from relocating certain intangible assets, among other factors.
- Nine-month operating cash flow was $1.069 billion, down from $1.278 billion. Capital expenditures were $440 million. Investing activities provided $34 million, including net proceeds from the Nutrinova transaction; financing activities used $1.216 billion.
- Cash and equivalents were $1.357 billion at September 30, 2023, down from $1.508 billion at year-end 2022. Total debt was $13.699 billion, versus $14.679 billion; approximate net debt was $12.342 billion. Available borrowing was $1.75 billion under the U.S. revolving facility and $35 million under the China facility. The company reported compliance with financing covenants.
Material changes versus prior comparable periods
- Q3 sales rose 18%, largely reflecting higher Engineered Materials volume, including the DuPont Mobility & Materials acquisition, and increased Acetyl Chain opportunities during industry outages in Asia. Lower pricing partially offset volume growth. Nine-month sales increased 14%.
- Engineered Materials sales increased 65% in Q3 and 70% year to date, principally due to the acquisition. Segment operating profit was $691 million for Q3 and $961 million for nine months, including the Nutrinova gain.
- Acetyl Chain sales fell 13% in Q3 and 20% year to date, mainly due to weaker pricing and, for the nine-month period, lower demand in Europe. Segment operating profit declined 13% in Q3 and 32% year to date; lower raw-material and sourcing costs partly cushioned the decline.
- Interest expense increased to $178 million in Q3 and $542 million year to date, compared with $154 million and $237 million. Depreciation and amortization also rose, primarily due to the M&M acquisition.
- In August, Celanese issued approximately $3.0 billion of senior notes at rates of 6.350%–6.700% and used proceeds for a $2.25 billion tender offer and other debt repayments, including repayment of certain term loans.
Outlook, commentary, risks and unusual items
- Management said destocking and volatile demand continued across several end markets. It expected demand and destocking challenges to persist, putting pressure on pricing, partly offset by improving input costs. The filing does not provide a specific earnings or sales forecast.
- Management expected 2023 capital expenditures of approximately $500 million and said it was prioritizing near-term productivity projects. It cited ongoing expansion and optimization projects; the Bay City, Texas VAM expansion was temporarily on hold.
- The company said it was focused on deleveraging, had paused share repurchases, and was assessing additional cash-generation opportunities. It believed available liquidity would meet obligations and investment needs for the foreseeable future, while noting that weaker-than-expected cash generation could require additional borrowing, reduced or delayed capital spending, or refinancing.
- On September 27, Celanese formed Nutrinova with Mitsui, retaining a 30% equity-method interest; Mitsui acquired 70% for $503 million, subject to adjustments. The transaction generated the $508 million reported gain.
- After quarter-end, Celanese announced planned closure of its Uentrop, Germany Polyamide 66 and High-Performance Nylon polymerization units. It estimated 2024 exit and shutdown costs, excluding employee termination costs, at $110–$125 million; termination costs remain subject to consultation.
- Key risks include raw-material and energy price volatility, demand and pricing pressure, acquisition integration and leverage, currency and interest-rate exposure, supply-chain and geopolitical disruption, tax audits, and environmental and other legal contingencies. Environmental remediation liabilities were $59 million; the company said its estimated share of the Lower Passaic River cleanup was not expected to be material. Unconditional purchase obligations totaled $3.9 billion.
Important facts for investors to verify
- How much of reported earnings and operating margin reflects the Nutrinova gain and discrete tax benefits, rather than recurring operations.
- Whether M&M acquisition integration, spending, synergies and cash generation support the stated deleveraging objective.
- Whether demand, destocking and pricing trends improve, especially in the Acetyl Chain and in Europe and Asia.
- Debt maturities, refinancing costs, covenant headroom and the availability of cash held by foreign subsidiaries.
- The final costs and timing of the Uentrop closure, and whether the $3.9 billion purchase obligations or tax, environmental and other contingencies change materially.