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LyondellBasell Industries N.V. (LYB)·Q1 2014 Earnings Summary

Executive Summary

  • Solid quarter despite transitory headwinds: LYB delivered Q1 2014 income from continuing operations of $943M ($1.72 diluted EPS) and EBITDA of $1.668B, aided by a $52M environmental settlement ($0.09 EPS); underlying fundamentals remained strong while weather and maintenance weighed on O&P-Americas and Refining .
  • Segment mix improved: Europe/Asia/International EBITDA rebounded to $356M on higher margins, advantaged feed usage (~35%), seasonal recovery, and the settlement benefit; Technology and I&D were steady; Refining was roughly flat sequentially despite higher crack spreads due to coker maintenance and higher natural gas/RINs costs .
  • Growth/capital return catalysts: 200mm lb/yr PE debottleneck completed; La Porte ethylene expansion/downtime underway with 800mm lb/yr capacity addition targeted for Q3; final permits issued for Corpus Christi ethylene expansion; 15M shares repurchased in Q1 and quarterly dividend raised to $0.70 .
  • Outlook: Management expects near-term trends to continue; significant Q2 La Porte downtime should be mitigated by inventory built in Q1; refining benchmark crack expected to stay relatively unchanged vs Q1 into summer driving season .

What Went Well and What Went Wrong

  • What Went Well

    • Europe/Asia/International strength: EBITDA rose to $356M (vs $115M in Q4) on higher olefins/polyolefins margins, seasonal demand, 35% advantaged feed cracking, and a $52M environmental settlement benefit .
    • I&D delivered steady results: EBITDA of $375M vs $354M in Q4, with stronger PO/derivatives and acetyls (benefit from methanol restart) offsetting weaker styrene/EG; oxyfuels margins improved seasonally later in the quarter .
    • Technology momentum: EBITDA increased to $76M (vs $55M in Q4) on higher catalyst sales and lower R&D .
    • Management quote: “The first quarter results were good despite headwinds from maintenance, weather-related raw material cost volatility, and shipping delays… our growth program is generating immediate results as our methanol plant restart contributed to first quarter earnings and cash flow.” .

  • What Went Wrong

    • O&P-Americas compressed by outages and pre-turnaround moves: EBITDA fell to $736M (vs $883M Q4) due to cold weather/maintenance outages, outside ethylene purchases (~300M lbs) and inventory build ahead of La Porte; ethylene margin down YoY by ~6¢/lb (≈$120M impact) .
    • Refining weighed by coker outage and costs: EBITDA decreased $5M sequentially to $129M; higher Maya 2-1-1 ($28.26/bbl) was offset by lower yields (coker), and ~$10M higher natural gas plus ~$10M higher RINs .
    • One-time positive obscures underlying EPS: $52M environmental indemnity settlement had no tax impact and added $0.09 to diluted EPS, creating a non-recurring tailwind .

Financial Results

  • Consolidated results vs prior periods
MetricQ3 2013Q4 2013Q1 2014
Sales and other operating revenues ($USD Billions)$11.152 $11.138 $11.135
Income from continuing operations ($USD Millions)$854 $1,177 $943
Diluted EPS – Continuing Ops ($)$1.51 $2.11 $1.72
EBITDA ($USD Millions)$1,531 $1,543 $1,668
Operating Income (EBIT) ($USD Millions)$1,207 $1,264 $1,340
EBITDA Margin %13.7% 13.9% 15.0%
EBIT Margin %10.8% 11.4% 12.0%
  • Segment EBITDA
Segment EBITDA ($USD Millions)Q1 2013Q4 2013Q1 2014
O&P – Americas898 883 736
O&P – Europe, Asia & Int’l (EAI)225 115 356
Intermediates & Derivatives373 354 375
Refining20 134 129
Technology66 55 76
Total EBITDA1,585 1,543 1,668
  • Selected KPIs and operational metrics
KPIQ1 2013Q4 2013Q1 2014
O&P-Americas ethylene produced (MM lbs)2,337 2,156 1,979
O&P-Americas polyethylene sold (MM lbs)1,396 1,409 1,406
O&P-EAI ethylene produced (MM lbs)912 930 989
O&P-EAI polyethylene sold (MM lbs)1,206 1,167 1,275
Refining throughput (MBPD)173 (heavy crude oil processing rate) 239 247
Maya 2-1-1 crack ($/bbl)$22.70 avg ref 2013 context; Q1 2014: $28.26 (period value shown)

Note: Q1 2014 EPS includes a one-time $52M environmental indemnity settlement adding $0.09 to diluted EPS .

Guidance Changes

Metric/ItemPeriodPrevious GuidanceCurrent GuidanceChange
La Porte ethylene turnaround & expansionLate Q1–Q2 2014Begin late Q1 2014, ~80 days (Q4 outlook) Significant planned downtime in Q2; inventory build in Q1 to mitigate; 800mm lb/yr ethylene addition targeted for Q3 Maintained timeline; added mitigation details
Corpus Christi ethylene expansion2015+Permitting in process (prior) Final permits received mid-April 2014; schedule intact (late 2015 completion) Progressed
Dividend (quarterly interim)Ongoing$0.60/share (Q4 2013) Increased to $0.70/share Raised
Share repurchase authorization2014–2015Initial 10% program (in-place) Additional 10% approved Apr 16, 2014; 15M shares repurchased in Q1 Expanded
Refining benchmark outlookQ2 2014—Maya 2-1-1 expected relatively unchanged from Q1 into summer driving season Maintained

No formal quantitative revenue/EBITDA/EPS guidance provided; qualitative outlook unchanged to modestly constructive .

Earnings Call Themes & Trends

TopicQ3 2013 (Q-2)Q4 2013 (Q-1)Q1 2014 (Current)Trend
O&P feedstock advantages (US NGLs)Strong NGL advantage; high ethane mix; metathesis used to monetize propylene spreads Increased ethane cracking to 77% of US ethylene in Q4 O&P-Americas pressured by maintenance/weather; ethane ~75% of production; O&P-EAI cracked ~35% advantaged feeds Stable structural advantage; transitory headwinds
Europe feed flexibility40% advantaged feed in Q3; restructuring benefits Seasonal slowdown; insurance settlement in Q4 Strong rebound; 93% utilization; improved margins; advantaged feed ~35% Improving
Methanol restart (Channelview)Nearing completion; economics attractive vs greenfield Restart on schedule in Q4 ~85% of nameplate in Q1; contributed ~$50M to EBITDA; debottleneck potential Positive ramp
Refining margins/operationsWeak EBITDA ($8M) in Q3; actions to diversify crude, reduce RINs Q4 improvement; Maya 2-1-1 at $24.32; RINs down Q1 Maya 2-1-1 $28.26; offset by coker outage, higher gas/RINs; throughput 247 MBPD Mixed; execution headwinds
Capital returns (buybacks/dividends)Strong buyback cadence; cash generation highlighted Increased dividend to $0.60; 8.5M shares repurchased 15M shares repurchased; dividend raised to $0.70; second 10% buyback approved Accelerating
Macro/ethane exportsEthane exports likely limited; propane exports to rise over time —Skeptical on 240kbpd ethane export to Europe by ‘16; more Asia use likely; ethane not viable for LYB Europe vs propane/butane Cautious on export impact

Management Commentary

  • CEO on Q1 performance: “The first quarter results were good despite headwinds from maintenance, weather-related raw material cost volatility, and shipping delays… our growth program is generating immediate results as our methanol plant restart contributed to first quarter earnings and cash flow.”
  • Outlook: “Conditions in our businesses are generally expected to be consistent with recent quarters and seasonal trends… we expect significant planned downtime at our La Porte facility… Inventory build-up… should enable us to meet customer demands while helping mitigate the financial impact on the second quarter.”
  • CFO on cash returns: “During the first quarter, we generated $1.1 billion from our operations… we repurchased approximately 15 million shares… If you annualize the pace of first quarter share repurchases and dividends, it could be in the range of $6 billion for the year 2014.”

Q&A Highlights

  • Ethane export skepticism and European feasibility: Management views 240kbpd ethane export plan as aggressive; economics/logistics likely channel a portion to Asia; ethane not attractive for LYB’s European assets vs propane/butane/condensate .
  • La Porte pre-buy impact: ~300M lbs ethylene purchased; CFO agreed ~$0.25/lb rule-of-thumb implies ~$75M hit to Q1, with recovery expected in Q2 as inventory is sold/used .
  • Near-term outage/tightness: About 10% US olefins capacity expected down in Q2; supportive for margins, with spot ethylene already moving up .
  • Capital return trajectory: ~10M shares remained under initial 10% authorization as of late April; plan to complete in May and proceed on new 10% authorization across ~18 months .
  • Refining drivers: Sequential drop driven by coker outage affecting product yields; higher natural gas and RIN costs also headwinds despite stronger benchmark .

Estimates Context

  • S&P Global (Capital IQ) consensus estimates for Q1 2014 EPS/Revenue were unavailable via our data service at time of analysis due to API limits. As a result, we cannot definitively classify LYB’s Q1 results as a beat or miss vs Wall Street consensus. Values are typically sourced from S&P Global; however, they were unavailable in this instance.
  • Modeling note: Reported EPS included a non-recurring $0.09 from an environmental indemnity settlement with no tax impact; analysts may adjust for this in normalized EPS and segment comparables .

Key Takeaways for Investors

  • Transitory headwinds masked resilient fundamentals: Weather/maintenance knocked O&P-Americas and Refining, but EAI/I&D/Tech strength and project contributions (methanol, PE debottleneck) held consolidated EBITDA above $1.6B .
  • Near-term setup constructive: Q2 will absorb La Porte downtime, but inventory built in Q1 should cushion EBITDA; industry olefins outages (~10% capacity) support margins heading into summer .
  • Structural advantages intact: US NGL advantage and European feed flexibility underpin margin durability; EAI’s advantaged cracking (35%) and 93% utilization outperformed peers .
  • Growth optionality accelerating: La Porte ethylene +800mm lb/yr targeted for Q3, with Corpus Christi permitted; Channelview expansion on track; portfolio projects carry attractive returns despite Gulf Coast cost inflation .
  • Capital return engine robust: 15M shares repurchased in Q1; quarterly dividend raised to $0.70; second 10% buyback authorization supports multi-quarter cash return visibility .
  • Watch Refining execution and costs: Benchmark cracks are supportive, but product mix/yields and cost items (RINs, gas) can dilute capture; operational normalization post-coker maintenance is a swing factor .
  • Normalization adjustments: Exclude the $52M environmental settlement ($0.09 EPS) for clean run-rate comparisons; also consider ethylene pre-purchase/inventory timing shifting profit between Q1 and Q2 .

Sources and citations

  • Q1 2014 8-K and press release, including exhibits and tables .
  • Q1 2014 earnings call transcript (prepared remarks and Q&A) –.
  • Q4 2013 8-K and press release, including tables and outlook .
  • Q3 2013 earnings call transcript for trend context –.