Sequential Operating EBITDA Growth in All Businesses; Second Highest Quarterly Adjusted EPS in Company History
Celanese Corporation (NYSE: CE), a global technology and specialty materials company, today reported second quarter 2012 net sales of $1,675 million, a 4 percent decrease from the same period last year. The company delivered higher overall volumes, but results were impacted by lower pricing, primarily in its Acetyl Intermediates business, and unfavorable currency impacts. Operating profit was $164 million compared with $209 million in the prior year period. Margins expanded in the company's Industrial Specialties and Consumer Specialties businesses but did not completely offset lower margins in its Acetyl Intermediates business due to temporarily elevated industry margins in the prior year, as well as the current weakened economic environment in Europe and slower growth in Asia.
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1 Non-U.S. GAAP measure. See reconciliation in Table 1A.
2 Non-U.S. GAAP measure. See reconciliation in Table 6.
"Celanese delivered the second highest quarterly earnings in company history despite a more challenging global economic environment. Sequentially, each of our businesses delivered improved operating results while remaining focused on providing value-added solutions for our customers. Additionally, with the exception of Acetyl Intermediates, our portfolio of businesses expanded margins year-over-year," said Mark Rohr, chairman and chief executive officer. "Celanese's operating cash flow in the quarter resulted in the second lowest net debt level since the company's IPO in 2005 and enabled us to continue to pursue our balanced capital deployment strategy."
Net earnings were $210 million in the second quarter of 2012 compared with the prior year's results of $203 million. Diluted earnings per share from continuing operations was $1.31 compared with $1.29 last year.
Adjusted earnings per share in the second quarter of 2012, which excluded other charges and other adjustments, was $1.47 compared with $1.66 in the prior year period. The tax rate and diluted share count for adjusted earnings per share in the second quarter were 17 percent and 159.7 million, respectively.
Recent Highlights
Announced plans to construct and operate a methanol production facility at its Clear Lake, Texas acetyl complex which is expected to start up after July 1, 2015. As one of the world's largest producers of acetyl products, the company plans to utilize its existing infrastructure to capture the opportunities created by abundant and affordable U.S. natural gas supplies.
Launched the new SunsationSM platform to help food and beverage manufacturers develop low- and no-calorie products that are better tasting and simplify the formulation process to bring products to market faster.
Entered into an agreement to advance the development of fuel ethanol projects with Pertamina, the state-owned energy company of Indonesia. In line with its long-term strategy to develop new and renewable energy capabilities, Pertamina will collaborate exclusively with Celanese to jointly develop synthetic fuel ethanol projects in the Republic of Indonesia utilizing Celanese's proprietary TCX® ethanol process technology.
In the process of starting up its technology development unit for ethanol production at its facility in Clear Lake, Texas. The unit will support the company's continuing development of TCX® ethanol process technology for customers in both industrial-grade and fuel ethanol.
Second Quarter Business Segment Overview
Advanced Engineered Materials
Advanced Engineered Materials' operating EBITDA results improved year-over-year, despite weaker global economic conditions. Net sales decreased to $323 million in the second quarter of 2012 from $346 million in the prior year period. Pricing was up modestly by 2 percent; however, net sales were negatively impacted by lower volumes due to softer demand from industrial goods and electronics as well as currency. Operating EBITDA improved to $114 million from $107 million in the prior year period, as higher pricing and increased equity earnings offset the lower volumes and currency impacts. Equity earnings from the company's affiliates were $55 million compared with $39 million in the prior year period, driven by higher methanol and methyl tertiary-butyl ether (MTBE) pricing in the company's Ibn Sina affiliate. Operating profit in the second quarter of 2012 was $21 million compared with $27 million in the same period last year, primarily due to higher depreciation and amortization in the period mainly related to the company's startup and expansion of its polyacetal (POM) facility in Frankfurt Hoechst Industrial Park.
Consumer Specialties
Consumer Specialties delivered improved year-over-year performance with net sales of $327 million compared with $291 million in the same period last year, mainly driven by higher pricing and volumes. Pricing increased by 7 percent over the prior year period while volumes increased by 6 percent as a production interruption in the company's Acetate Products business during the first quarter of 2012 shifted additional volume into the current period. Operating EBITDA was $168 million compared with $147 million in the same period last year on improved volumes and expanded margins. This quarter's results also included increased dividends from the company's acetate China ventures which totaled $83 million compared with $78 million in the same period last year. Operating profit increased to $75 million from $48 million last year.
Industrial Specialties
Industrial Specialties' net sales in the second quarter of 2012 were $327 million compared with $329 million in the prior year period. Volumes increased by 5 percent year-over-year, primarily in North America and Asia, driven by recent strategic actions. However, results were negatively impacted by currency translation, primarily the Euro. Operating EBITDA increased to $47 million from $40 million in the prior year period, as expanded margins benefited from the increased volumes and lower raw material costs. Operating profit in the second quarter of 2012 was $34 million compared with $28 million in the prior year period.
Acetyl Intermediates
Acetyl Intermediates' net sales in the second quarter of 2012 were $821 million compared with $914 million in the same period last year, primarily due to lower acetyl pricing. The lower pricing year-over-year was the result of temporarily elevated utilization in the second quarter of 2011 due to planned and unplanned outages of acetyl producers as well as softer global demand in the current period driven by weaker economic conditions in Europe and Asia. Operating EBITDA in the second quarter of 2012 was $99 million compared with $177 million in the same period last year, primarily due to the lower pricing. Sequentially, operating EBITDA improved from $83 million, driven by expanded margins on higher pricing. Operating profit in the current period was $77 million compared with $152 million in the same period last year and $60 million in the first quarter of 2012.
Taxes
The tax rate for adjusted earnings per share was 17 percent in the second quarter of 2012 and the second quarter of 2011. The effective tax rate for continuing operations for the second quarter of 2012 was 20 percent compared with 27 percent in the second quarter of 2011. The lower effective tax rate in the second quarter of 2012 was primarily due to tax impacts related to joint venture earnings partially offset by increases in certain jurisdictions' losses providing no income tax benefit. Net cash taxes paid were $23 million in the first six months of 2012 compared with $30 million in the first six months of 2011. The decrease in net cash taxes paid is primarily due to timing of tax refunds received in certain jurisdictions.
Equity and Cost Investments
Earnings from equity investments and dividends from cost investments, which are reflected in the company's earnings and operating EBITDA, were $146 million in the second quarter of 2012, a $21 million increase from the prior year period's results. The cash flow impact of equity and cost investment dividends was $158 million, a $34 million increase from the prior year period. During the second quarter of 2012, the company received $83 million in dividends from its acetate China ventures, a $5 million increase from last year's results. This quarter's results also reflected the increased earnings from the Ibn Sina strategic affiliate.
Cash Flow
During the first six months of 2012, the company generated $402 million in cash from operating activities, an $86 million increase from the same period last year, primarily driven by lower trade working capital usage versus the prior year period. Cash used in investing activities during the first six months of 2012 was $283 million compared with $133 million in the same period last year. The 2012 results included capital expenditures related to the company's acquisition of two product lines from Ashland Inc. and other strategic actions. The 2011 results included $114 million of capital expenditures and $158 million of cash received from Fraport, both related to the relocation of the company's operations in Kelsterbach, Germany. Net cash from financing activities during the first six months of 2012 was a cash inflow of $4 million compared with a cash outflow of $198 million in the prior year period. During the second quarter of 2011, the company used a net of $116 million to prepay one of its term loan facilities. Net debt at the end of the second quarter of 2012 was $2,176 million, the second lowest net debt level since the company's IPO and a $159 million decrease from the end of 2011.
Outlook
"We anticipate the ongoing challenging economic environment in Europe and the current growth rates in Asia will continue through the remainder of 2012," said Rohr. "As a result, we expect second half adjusted earnings per share will reflect typical seasonal trends and be slightly below the first half of 2012, excluding the dividend from the company's acetate China ventures."
