Earnings Scorecard: Celanese (CE)

Specialty material company, Celanese Corporation (CE) earned $1.12 per share in the second quarter of 2010, ahead of the Zacks Consensus Estimate of $1.02. Analysts have maintained a positive opinion on the stock. Celanese raised its earnings guidance by 15 cents for the full year 2010. Strong management guidance further added to the positive sentiment.

However, weak market conditions, lower spending and the recession led to volatility in share prices for most of the chemical makers like El DuPont De Nemours & Co. (DD) and The Dow Chemical Company (DOW). We see a similar trend in Celanese share prices as well.

Second Quarter Highlights

Celanese Corp. earned $1.12 per share in the second quarter of 2010, beating the Zacks Consensus Estimate of $1.02. Earnings doubled from last year’s 56 cents per share.

Revenues and Margins

Quarterly revenues grew 22% year-over-year to $1.5 billion, primarily driven by higher volumes across all business segments. Pricing gains in the Acetyl Intermediates and Industrial Specialties businesses further boosted growth. Operating profit jumped 75% to $156 million on lower fixed costs. Operating margins came in at 10% from last year’s 7.2%.

For further details, refer to: Celanese Tops Expectations

Agreements of Analysts

Looking at the earnings estimate revision trend, we find that revisions have been made predominantly over the last 30 days. Out of the 9 analysts covering the stock, five raised their estimates for the upcoming quarter while no negative revisions were noticed in the same period. For the full year 2010, seven of the 10 analysts covering the stock made positive estimate revisions while none moved negatively.

For 2011, we see a similar trend, with estimates moving up notably over the last 30 days. Of the 10 analysts covering the stock, five upgraded their earnings estimate for the full year 2011 with no downside movement

It appears that the analysts who remained silent post the results, preconceived Celanese’s upbeat performance in the second quarter and strong full year earnings guidance. This explains no estimate revisions over the last 7 days.

Celanese has a history of surpassing the Zacks Consensus Estimate. The company has not missed the Zacks Consensus Estimate in any of the last four quarters as reflected by the average surprise of 16.43%. Currently, the Zacks Consensus Estimate is pegged at 72 cents and $3.13 per share for the third quarter and full year 2010, with an upside potential of 2.78% and 0.96%, respectively.

Our Recommendation

Celanese’s earnings outlook has been improving, helped by the strong performance in the Advanced Engineered Materials business. The company is operating its facilities in the Acetyl Intermediates segment at above the industry utilization rates of 80%, which provides cost advantages. Capacity utilization has also improved in the Industrial Specialties segment on rising demand in the Asia-Pacific. Anticipating further demand recoveries and declining raw material costs, Celanese has raised its earnings guidance for the full year 2010.

However, Celanese is susceptible to volatile raw material costs, which is pressuring margins in the Consumer Specialty and Industrial Specialty business. The company has a high leverage that restricts its financial flexibility.

Currently, Celanese has a short-term (1 to 3 months) Zacks #2 Rank (“Buy”) but a long-term (6+ months) Neutral recommendation.

CELANESE CP-A (CE): Free Stock Analysis Report

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