Celanese (CE) Poised On Project Investments & Productivity

We issued an updated research report on leading chemical and specialty materials maker, Celanese Corporation (NYSE:CE) on Oct 1.

Celanese, which is among the prominent players in the chemical space along with Eastman Chemical Company (NYSE:EMN) , Air Products and Chemicals, Inc. (NYSE:APD) and PPG Industries, Inc. (NYSE:PPG) , is poised to benefit from its productivity measures, growth investments in organic projects and strategic acquisitions amid a challenging demand environment.

Celanese’s strategic actions including cost savings through productivity initiatives, price increase actions and efficiency enhancement are expected to support its earnings in 2019. Celanese is committed to execute its productivity programs that include implementation of a number of cost reduction capital projects. It also remains focused on investing in high-return organic projects.

Moreover, Celanese continues to actively pursue acquisitions, which are providing it opportunities for additional growth, investment and synergies. The acquisitions of SO.F.TER., Nilit and Omni Plastics are expected to significantly contribute to earnings expansion in the company's Engineered Materials (EM) segment. The acquisition of Next Polymers also strengthened Celanese’s position as a leader in India’s engineering thermoplastics market and further expanded the company’s global manufacturing footprint.

The company’s EM unit is also poised to gain from new business wins and significant project commercialization. The company commercialized 1,177 projects during the second quarter. It is on track to commercialize more than 4,000 projects in 2019.

The company is also implementing several process improvement projects across a global network of acetyls manufacturing plants. All these positions its Acetyl Chain unit for solid growth.

Celanese is also committed toward rewarding its shareholders with dividends and share buybacks leveraging solid free cash flow generation. The company generated operating cash flow of $424 million and free cash flow of $356 million during the second quarter. It returned $378 million to shareholders through dividends and share repurchases during the quarter.

However, Celanese faces a challenging business environment. The company is exposed to a sluggish demand environment, partly due to weakness across Europe and Asia. It witnessed a slowdown in demand in the second quarter across several end markets, especially automotive and electronics. Lower demand hurt sales in its EM and Acetyl Chain units in the quarter. The challenging conditions are likely to continue in the third quarter.

Celanese also faces some pressure in its Acetate Tow segment. Low utilization rates across the tow industry are affecting volumes of acetate tow. Demand remains subdued in the tow industry.

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