21 October 2008 - Celanese Corporation, a leading global chemical company, today reported net sales of $1,823 million, a 16 percent increase from the prior year's results, primarily driven by higher pricing, increased volumes in Acetyl Intermediates, and positive currency impacts.
Operating profit rose to $151 million from $147 million in the prior year period. Higher raw material and energy costs offset the positive impact of increased sales. Additionally, benefits from an insurance recovery offset costs associated with the planned shutdown of the company’s Pampa, Texas facility. Net earnings were $158 million compared with $128 million in the same period last year.
Adjusted earnings per share for the third quarter were $0.78 compared with $0.73 in the prior year and excluded a net of $20 million of other charges and adjustments primarily associated with the insurance recovery, the planned Pampa plant shutdown and costs related to the company’s revitalization of its Industrial Specialties businesses. This quarter’s results included approximately $15 million of impact related to Hurricane Ike. The quarter’s results are based on 162.9 million diluted shares outstanding versus 167.4 million in the third quarter of 2007, primarily driven by the company’s successful execution of its share repurchase program. Operating EBITDA increased to $314 million, a $12 million increase from the same period last year.
“Celanese continued to execute on its strategic objectives and delivered solid results in a challenging economic environment,” said David Weidman, chairman and chief executive officer. “We believe that our leading global franchises and our integrated business model position us to deliver value and provide a more stable earnings platform in such an environment. However, we did begin to see the impact of recessionary trends in Europe during the quarter and have not seen indications of a near-term recovery in North America.”
Year to Date 2008
Net sales for the first nine months of 2008 were $5,537 million compared with $4,684 million in the same period last year, driven by higher pricing, additional volumes in the Acetyl Intermediates business and positive currency impacts. Operating profit was $592 million compared with $424 million in the prior year period. The 2007 results included a long-term management compensation program paid upon the exit of the company’s private equity sponsor. Operating EBITDA for the first nine months of 2008 was $1,101 million, up 17 percent from the first nine months of 2007. Adjusted earnings per share were $3.05, a 30 percent increase from last year’s results.
Recent Highlights
-
Safely resumed operations at production facilities located in the Gulf Coast following a controlled and successful shutdown due to Hurricane Ike.
-
Announced plans to build a new Vectra® liquid crystal polymer (LCP) production facility co-located at the Celanese integrated chemical complex in Nanjing, China. The facility is projected to be operational in 2010.
-
Began construction of the world’s largest, state-of-the-art polyacetal plant at Höchst Industrial Park. The facility is expected to be operational in 2011 and will replace Ticona’s existing production operations in Kelsterbach, Germany.
-
Received Green Partner certification from Sony Corporation at its Ticona plant in Shelby, N.C. The certification recognizes suppliers’ cooperation of eco-friendly products and their ability to meet established regulations for environment-related substances found in components of products that bear the Sony name.
Third Quarter Segment Overview
Advanced Engineered Materials
Advanced Engineered Materials’ continued success with its expansion strategy in Asia and increased penetration in new automotive applications helped to offset the impact of significantly reduced automotive demand and higher raw material and energy costs in the quarter. Net sales were $272 million, a $14 million increase from last year’s results, driven by the company’s recent pricing actions and positive currency impacts. Significant declines in the U.S. and European automotive industry, however, resulted in overall lower volumes for the business. Sales in Asia, related to the business’ expansion strategy, increased for all product lines. Operating profit was $13 million compared with $35 million in the same period last year, as the pricing increases could not offset lower volumes and significantly higher raw material and energy costs in the period. Operating EBITDA was $45 million, a $25 million decrease from last year’s results. Advanced Engineered Materials’ strategic equity affiliates were impacted by the same macroeconomic and cost factors and contributed $6 million less in net earnings compared to last year.
Consumer Specialties
Consumer Specialties continued to generate stable earnings, driven by its expansion in Asia and the successful integration of its acquired Acetate Products Limited (APL) business. Net sales increased to $295 million, a $13 million increase from last year’s results. The increase was driven by higher pricing on continued strong demand and positive currency impacts. These increases were partially offset by lower volumes resulting from reduced flake sales as the company shifted flake production to its China ventures. Operating profit was $42 million, $8 million higher than the prior year period, due to lower spending primarily related to synergies from the acquired APL business and the higher pricing. Operating EBITDA was $56 million compared with $53 million in the prior year period.
Industrial Specialties
The revitalization strategy for Industrial Specialties, focused on manufacturing optimization and higher value-added applications, continued to deliver improved earnings in the quarter. Net sales were $378 million, a $64 million increase from the same period last year, primarily driven by higher pricing across all business lines and favorable currency effects. The higher pricing was driven by continued strong demand for polyvinyl alcohol and specialty polymers, and higher raw material costs across the business. A soft North American and European construction market resulted in continued weakness in demand for emulsions products. Volume was slightly higher in comparison to last year’s results due to the impact of the force majeure related to the unplanned outage at the company’s Clear Lake, Texas, facility in 2007. Operating profit was $18 million compared with a loss of $9 million in the prior year period. Last year’s results included plant shutdown and severance costs associated with the company’s revitalization efforts. Operating EBITDA, which excludes these strategic costs, was $36 million compared with $18 million in the prior year period.
Acetyl Intermediates
Acetyl Intermediates’ results benefited from its strategic expansions in Asia and attractive acetyl industry fundamentals. Net sales were $1,056 million, a 22 percent increase from the prior year period, primarily driven by higher pricing and increased volumes. Price increases, primarily in the Americas and Europe, were attributed to formula-based pricing on raw material increases and also to market tightness in the Americas. Higher overall volumes in the quarter were driven by increased availability of acetic acid compared with 2007 results that were impacted by the unplanned outage of the acetic acid unit at the company’s Clear Lake, Texas, facility. Operating profit was $100 million, a $17 million decrease from the prior year period. This quarter’s results included the impact of Hurricane Ike and $28 million of asset impairment and severance charges related to the planned shutdown of the company’s Pampa, Texas, facility, which is scheduled for early 2009. These items were partially offset by an insurance recovery of $23 million related to the 2007 outage at the Clear Lake facility. Operating EBITDA, which excludes the impact of the planned Pampa plant shutdown and the insurance recovery, was $182 million compared with $178 million in the same period last year. The increase was primarily driven by higher dividends from the company’s Ibn Sina cost investment.
Other Activities
Other Activities primarily consists of corporate costs, including financing and administrative activities, certain other operating entities, including the captive insurance companies, and intersegment eliminations. Operating EBITDA in the third quarter was ($5) million compared with ($17) million in the prior year period. Included in the 2008 results were approximately $9 million of foreign exchange benefits. These benefits were mostly offset by similar foreign exchange losses reported in the business segments and in interest expense. The company expects Other Activities to total between ($90) million and ($100) million for the full year.
Taxes
The tax rate for adjusted earnings per share was 26 percent in the third quarter of 2008 compared with 28 percent in the third quarter of 2007. The U.S. GAAP effective tax rate for continuing operations for the third quarter of 2008 was negative 8 percent compared with 1 percent in the third quarter of 2007. The lower effective tax rate in 2008 is primarily due to a decrease in the U.S. tax effect on foreign earnings and dividends. The 2007 effective tax rate included a tax benefit for revaluation of deferred taxes following a German tax rate reduction. The tax rate for adjusted earnings per share is based upon the company’s previous guidance which did not include these items. Cash taxes for the first three quarters of 2008 were $85 million, or $89 million lower than the prior year period. This decrease is primarily due to reduced U.S. cash tax payments as a result of utilizing net operating loss carryforwards and the timing of German tax refunds.
Equity and Cost Investments
Earnings from equity investments and dividends from cost investments, which are reflected in the company’s adjusted earnings and operating EBITDA, totaled $54 million in the third quarter of 2008 compared with $53 million in the same period last year. Higher dividends from the company’s Ibn Sina cost affiliate offset lower earnings from the company’s Advanced Engineered Materials equity affiliates. Equity and cost investment dividends, which are included in cash flows, were $42 million versus $43 million in the prior year period.
Cash Flow
During the first nine months of 2008, the company generated $345 million in cash from operating activities, a $66 million increase from the prior year period, on stronger operating performance and lower cash taxes. The improved performance was partially offset by increases in trade working capital. Last year’s results included expenses related to a long-term management compensation program.
Cash used in financing activities during the first nine months of 2008 was $402 million compared with $760 million in the same period last year. Results for the first nine months of 2007 included debt repayments and one-time costs associated with the company’s debt refinancing transaction.
Cash and cash equivalents at the end of the third quarter were $584 million, a decrease of $241 million from the end of 2007. During the first nine months of 2008, the company repurchased approximately $378 million of its outstanding common shares and has approximately $22 million in authorized purchases remaining. Net debt at the end of the third quarter was $3,036 million, an increase of $305 million from the end of 2007.
Outlook
“We believe that the quality of our franchises, fiscal discipline and focus on operational excellence will continue to create value for our shareholders in this challenging economic environment,” said Weidman. “While the impact of today’s environment on our industry, our customers, and therefore, our short-term performance is uncertain, we remain confident in our ability to execute our strategic objectives.”
For the remainder of 2008, the company expects the economic slowdown in North America and Europe to continue and also sees recent signs of slowing growth in Asia linked to the global credit crisis. Due to these factors, and their impact on overall volumes, the company updated its full year 2008 outlook for adjusted earnings per share to between $3.40 and $3.55 from its previous guidance range of between $3.60 and $3.85. The company’s guidance is based on a tax rate of 26 percent and a year-end weighted average of 165 million diluted shares outstanding. The company also adjusted its full year 2008 operating EBITDA guidance range to between $1,320 million and $1,355 million from its previous guidance range of between $1,355 million and $1,415 million.