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Celanese (CE) Up 0.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Celanese (CE). Shares have added about 0.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Celanese due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Celanese’s Q2 Earnings and Sales Fall Short of Estimates

Celanese reported second-quarter 2023 earnings from continuing operations of $2 per share, which declined from $4.03 in the prior-year quarter.

Adjusted earnings in the second quarter were $2.17 per share, down 56.5% from $4.99 reported a year ago. The bottom line lagged the Zacks Consensus Estimate of $2.46.

Revenues of $2,795 million increased roughly 12.4% year over year. However, revenues missed the Zacks Consensus Estimate of $2,838.4 million.

Celanese’s second-quarter results were impacted by a drop in Acetyl Chain net sales due to slow demand recovery. Strategic initiatives, like boosting volume during industry turnarounds and emphasizing higher-margin downstream derivatives, led to improved margins and sequential earnings growth. In the Engineered Materials segment, market challenges and intense competition led to actions such as production cuts and sales focus shifts. Despite reduced sales, the segment achieved profitability through cost control and synergies.

Segment Highlights

Net sales in the Engineered Materials unit were $1,585 million in the reported quarter, up around 67% year over year. It beat our estimate of $1,222.9 million. The segment reported an operating profit of $158 million and an adjusted EBIT of $205 million in the second quarter.

The Acetyl Chain segment posted net sales of $1,233 million, down roughly 20.9% year over year. It lagged our estimate of $1,262.1 million. The segment generated an operating profit of $295 million and an adjusted EBIT of $332 million in the second quarter.

Financials

Celanese ended the quarter with cash and cash equivalents of $1,296 million, up roughly 11% sequentially. Long-term debt was down around 3.8% to $12,889 million.

Cash provided by operating activities was $762 million and free cash flow was $611 million in the reported quarter. Capital expenditures were $145 million in the quarter.

Outlook

Celanese sees adjusted earnings in the range of $2-$2.50 per share for the third quarter of 2023. The projection includes the expected roughly 30 cents impact from the M&M amortization. Moreover, for the full year, Celanese anticipates adjusted earnings in the range of $9-$10, which includes approximately $1.20 per share of M&M transaction amortization.

Recognizing the volatility and unpredictability of the current market landscape and competitive environment, the company is proactively implementing strategic initiatives. These actions involve strengthening its commercial teams, aligning production and inventory levels with prevailing demand, implementing cost-saving measures, and optimizing cash flow. These endeavors are anticipated to result in robust cash generation throughout 2023 and a continuation of earnings growth during the second half of the year.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -25.85% due to these changes.

VGM Scores

At this time, Celanese has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Celanese has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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