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    Celanese Corp (CE)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$150.38Last close (Feb 21, 2024)
    Post-Earnings Price$149.97Open (Feb 22, 2024)
    Price Change
    $-0.41(-0.27%)

    What went well

    • Celanese expects to achieve $150 million in synergies in 2024, confident in delivering this even if demand trends sideways. The synergies come from footprint optimization ($50 million), transition to a single SAP platform, and cross-sell opportunities.
    • Foundational level of earnings in the Acetyl Chain is $1.3 billion, expected to increase by $100 million in 2024 due to productivity gains from the Panther (Clear Lake acetic acid expansion) and CCU projects.
    • Celanese is committed to deleveraging, targeting 3x leverage, expecting to finish 2024 closer to this target and achieve it by 2025. Strong free cash flow is anticipated, with incremental net income of about $300 million in 2024, a working capital benefit of $100 million to $150 million, and lower CapEx by $100 million to $150 million.

    What went wrong

    • Reduced working capital benefit expected in 2024: The company's target for working capital benefit in 2024 is $100 million to $150 million, significantly lower than the over $500 million benefit achieved in 2023, which could impact free cash flow and deleveraging efforts.
    • Some positive impacts from 2023 may not repeat in 2024: The Acetyl Chain's earnings in 2023 were supported by industry outages and market dislocations, but "some of those reverse out as we move our way into next year", potentially leading to lower earnings in this segment.
    • Synergy realization from the M&M acquisition depends on demand recovery: The company achieved $100 million in synergies in 2023, "a little bit lower than we had anticipated earlier in the year" due to volume-related issues; the realization of the $150 million synergy target for 2024 may be impacted if demand does not improve.

    Q&A Summary

    1. M&M Business Outlook
      Q: What are expectations for M&M earnings and synergies in 2024?
      A: Celanese anticipates a significant uplift in M&M earnings in 2024, with first-quarter EBITDA expected to be the highest since the acquisition. They project $150 million in synergies for 2024, with about 40% impacting M&M. Despite challenging demand, they are confident in delivering these synergies through footprint optimization, SAP integration, and cross-selling opportunities.

    2. Input Cost Tailwinds
      Q: What is the outlook for input costs in 2024?
      A: Lower raw material and fixed costs are expected to flow through in 2024, providing a tailwind to earnings. Variable margins are improving, particularly in the nylon business, as they begin to realize the benefits of lower-cost inventory.

    3. Acetyl Chain Earnings
      Q: How is the Acetyl Chain expected to perform post-expansion?
      A: The foundational earnings level for the Acetyl Chain is $1.3 billion, with an expected increase of $100 million in 2024 from productivity gains due to the Clear Lake expansion. The company has meaningfully exceeded prior targets in Acetate Tow, contributing to stabilized chain earnings.

    4. Deleveraging and Free Cash Flow
      Q: What is the plan for deleveraging and free cash flow generation?
      A: Celanese is focused on generating free cash flow to reduce leverage to 3x by 2025. They anticipate incremental net income of around $300 million in 2024, with working capital benefits and lower CapEx contributing to free cash flow.

    5. SAP Integration Benefits
      Q: How is the SAP implementation impacting the business?
      A: The SAP integration was completed smoothly, involving over 1,600 team members. This final major integration step is expected to unlock synergies, facilitate better data access, and eliminate dependence on DuPont's TSA.

    6. Auto Industry Exposure
      Q: What is the outlook for auto builds and exposure to China autos?
      A: Celanese projects auto builds to be flat, with their business growing 150 to 200 basis points above builds. They are largely agnostic to the mix between EVs and ICE vehicles, and about 25% of sales are exposed to China.

    7. Nylon Pricing and Margins
      Q: Are there improvements in nylon pricing and margins?
      A: Nylon pricing and variable margins have stabilized and are improving as lower raw material costs flow through. Margins are expanding in the nylon business, and the company is confident these levels are sustainable.

    8. Supply Chain Disruptions
      Q: How are supply chain disruptions affecting the business?
      A: The company notes less material movement from Asia to Europe, indicating improved local demand in China. While disruptions in the Red Sea have lengthened supply chains, Celanese's global network mitigates significant impact.

    9. Potential Impairment in M&M
      Q: Are there any impairments expected in the M&M business?
      A: Currently, Celanese has not identified any indicators suggesting an impairment in the M&M business.

    10. Portfolio Management
      Q: Are there plans for portfolio changes or divestitures?
      A: While focused on integrating M&M, Celanese remains opportunistic and will pursue divestitures if assets are deemed more valuable to others.

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