Yahoo Finance Methanex Corporation (NASDAQ:MEOH) Q1 2024 Earnings Call Transcript
Methanex Corporation (NASDAQ:MEOH) Q1 2024 Earnings Call Transcript April 25, 2024
Methanex Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation 2024 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference call over to the Director of Investor Relations at Methanex, Ms Sarah Herriott. Please go ahead, Ms. Herriott.
Sarah Herriott: Good morning, everyone. Welcome to our first quarter 2024 results conference call. Our 2024 first quarter news release, management's discussion and analysis and financial statements can be accessed from the Financial Reports tab of the Investor Relations page on our website at methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections, which are included in the forward-looking information.
Please refer to our first quarter 2024 MD&A and to our 2023 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date and it is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, and our 60% interest in Waterfront Shipping. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events.
These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and, therefore, unlikely to be comparable to similar measures presented by other companies. We report these non-GAAP measures in this way because we believe that they are a better measure of underlying operating performance and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. Rich Sumner for his comments and a question-and-answer period.
Rich Sumner: Thank you, Sarah, and good morning, everyone. We appreciate you joining us today as we discuss our first quarter 2024 results. For the first quarter, our average realized price of $343 per tonne and produced sales of approximately 1.7 million tonnes generated an adjusted EBITDA of $160 million and adjusted net income of $0.65 per share. Adjusted EBITDA was higher compared to the fourth quarter of 2023 primarily due to a higher average realized price. Our business delivered a strong quarter financially despite $25 million of G3 delay cost being recognized in adjusted EBITDA during the first quarter, which was comprised of costs associated with monthly utilities take-or-pay contracts and employee costs, as well as the accounting recognition of overhedged gas costs through the third quarter projected restart.
The safe restart of G3 continues to be our company's top priority. We announced in mid February that the startup of the G3 plant was delayed due to complications in the auto thermal former during the late stages of the initial start-up process. Since that time, we've been working hard to understand the root cause of the issue, expedited repairs, complete comprehensive reviews of all remaining plant systems and implement any necessary changes. These work streams are all progressing well. We estimate that the repair costs will be approximately $15 million and expect that total capital cost for the project will remain at approximately $1.3 billion. The remaining CapEx to be spent on G3 is $70 million, which is fully funded with cash on hand. And we expect that to be spend evenly over the second and third quarters of 2024.
Given the progress to date on all work streams, we believe we will be ready to start up the plant in the third quarter of 2024. And I want to thank all of our global and regional team members for their continuing efforts and responding to the delay and continuing to safely manage our business. Another critical activity for our company during the first quarter was the major repair of the syn gas compressor units and resulting restart of our Egypt plant. We're happy to report a successful repair and safe and quality restart of the plant, all of which was executed in the time frames we've previously disclosed. And I also want to recognize our team's efforts in expediting these activities to bring us back online in Egypt. Now turning to the, fourth quarter fourth first quarter methanol pricing and market dynamics.
Our first quarter global average realized price of $343 per metric tonne was $21 higher than the previous quarter as global methanol markets tightened with constrained production leading to a global inventory drop and increasing prices in all regions. Compared to the fourth quarter of 2023, global methanol demand was slightly lower, primarily due to two large methanol's Olefins units, completing turnarounds during this period of supply constraints, while global demand for chemical and energy applications remained steady. Methanol's cost competitiveness in the current elevated energy price environment as well as its clean burning attributes continue to support strong demand in energy applications such as biodiesel and MTBE. On the supply side, operating rates were constrained by seasonal natural gas restrictions in Iran and China.
Supply was also constrained by planned and unplanned outages in the Atlantic Basin and overall reduced methanol production led to a drawdown of global inventory. We estimate the current -- current methanol marginal cost of production to be between $260 per tonne and $280 per tonne, based on current coal pricing in China. We continue to see relatively stable methanol pricing in China, at between $290 per tonne and $310 per tonne and all other major methanol markets. Pricing are at premiums to these levels. Our second quarter European price was posted at €525 per metric tonne. Our North America, Asia Pacific and China prices for May were posted at $645 per tonne $400 per ton and $390 per tonne, respectively. We estimate our April and May average realized price ranges between approximately $345 per metric tonne and $355 per metric tonne.
Looking ahead into the second quarter, we anticipate both supply and demand to gradually increase and exceed first quarter levels, as gas restrictions are expected to ease, and seasonal construction and mobility demand improves. Through 2024, from a supply perspective, we continue to monitor the potential start-up of the project in Malaysia later in the year. And we expect the net supply impact from the planned startup of G3 to be somewhat muted given the significant offset from our supply reduction in Trinidad on similar timeframes. From a demand perspective, we continue to closely monitor the macroeconomic environment and have seen some positive economic indicators that support a stable and moderate growth rate for traditional chemical applications with favorable energy pricing and policy support particularly in China continuing to support methanol demand into energy applications.
Now turning to our current financial position and outlook, we ended the first quarter with approximately $378 million of cash. And yesterday, we announced the renewal of our $300 million revolver with the addition of a $200 million tranche this provides us with additional financial flexibility to manage the business and to repay the $300 million bond due in December 2024. Looking ahead to the second quarter of 2024, we're expecting similar adjusted EBITDA and similar realized methanol price and produce sales with higher Egypt production offsetting the impact of lower Chile production, as we move into the winter period in the southern hemisphere. As for annual estimates, we've updated our 2024 equity production guidance to seven million tonnes, as production has been adjusted lower for the planned startup of G.
three in the third quarter with full rates through the fourth quarter and the Egypt outage which lasted to mid February of this year. Actual production may vary by quarter based on the timing of turnarounds, gas availability, unplanned outages and unanticipated events. We believe the planned startup of G3 in the third quarter represents a significant improvement in the asset portfolio and cash generation capability of our business. As a reminder, on a run-rate basis at $350 per tonne realized price, and 8.3 million equity tonnes, the business generates approximately $850 million in adjusted EBITDA and $450 million in free cash flow per year. We believe we're well positioned to maintain a strong balance sheet, profitably grow the business and return excess cash to shareholders.
We'd now be happy to answer questions.
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