LyondellBasell Industries N.V. (LYB)·Q2 2014 Earnings Summary

Executive Summary

• Record quarter: diluted EPS $2.22 and EBITDA $1.94B, with all segments contributing; O&P Americas approached $1B EBITDA despite La Porte turnaround delays .
• Sequential improvement: sales rose to $12.12B (+$0.98B QoQ), operating income to $1.61B (+$0.27B QoQ), and EBITDA to $1.94B (+$0.27B QoQ), driven by lower NGL costs, improved co-product values, and seasonal oxyfuels strength .
• Capital returns as catalyst: completed initial 10% buyback and initiated second 10% authorization; ~19M shares repurchased and $370M dividends in Q2 .
• Near-term risk: delayed La Porte ethylene restart (compressor issue) negatively impacts Q3, though 800M lb/year expansion expected online late in Q3, with steady macro tailwinds from low ethane/NGL costs .

What Went Well and What Went Wrong

• What Went Well

  • “Record earnings this quarter of $2.22 per share, while our EBITDA approached $2 billion… every segment contributed… O&P Americas generated nearly $1 billion of EBITDA” — CEO Jim Gallogly .
  • Oxyfuels seasonality drove ~$70–$65M sequential increase in I&D results; segment EBITDA rose to $430M (+$55M QoQ) .
  • Europe operations ran ~95% utilization with ~55% advantaged feedstocks, improving margins and JV equity income vs. Q1 .

• What Went Wrong

  • Reliability miss: La Porte ethylene turnaround extended (~115 vs. ~80 days) and restart delay (compressor seal) impacted Q2 by ~$50M and will cut Q3 production by ~100M lbs — management acknowledged underperformance vs. expectations .
  • O&P Americas July sales impacted and annual ethylene production reduced by ~600M lbs due to turnaround and equipment delay .
  • PO derivatives and solvents faced margin pressure; methanol margins softened vs. Q1, partially offset by acetyls and styrene improvements .

Financial Results

Segment EBITDA breakdown

KPIs

Vs. Estimates: S&P Global consensus EPS and revenue for Q2 2014 were unavailable due to data access limits; estimate comparisons are therefore not presented (S&P Global data unavailable).

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Record earnings… every segment contributed… O&P Americas generated nearly $1 billion of EBITDA even while performing significant scheduled maintenance at La Porte.” — CEO .
• “We did not fully deliver on our reliability expectations… late in completing our La Porte ethylene turnaround in part due to a mechanical issue… Despite these temporary setbacks, our commitment to Operational Excellence continues.” — CEO .
• “During the second quarter, we generated $1.6 billion from our operations… devoted $2.2 billion to share repurchases and dividends. Capital spending was consistent with our full year guidance of approximately $1.6 billion.” — CFO .
• “We expect to begin production from the 800 million pound per year La Porte ethylene expansion during the third quarter… results in the next quarter will be negatively impacted by the delayed start-up.” — CEO .

Q&A Highlights

• La Porte turnaround and impact: turnaround ~115 days vs. ~80 planned; compressor seal issue; ~$50M Q2 impact; ~100M lbs Q3 ethylene reduction; expansion furnaces near mechanical completion .
• Feedstock tailwinds: ethane prices in low 20s; propane/butane down; supportive for margins in U.S. and Europe .
• Capital deployment: preference for buybacks over M&A; initiated second 10% buyback; approach steady without acceleration changes .
• Expansion timelines: Channelview early 2015; Corpus late 2015; La Porte expansion to 10.7B lbs/year ethylene capacity once online .
• Refining: throughput 257 kbpd; spreads ~$27/bbl; operational improvements and crude slate optimization (targeting up to ~35% Canadian later in year) .
• Strategic options: continuing to study potential olefins MLP; tax basis differences post-2009/2010 bankruptcy may influence economics .

Estimates Context

• S&P Global consensus EPS and revenue estimates for Q2 2014 were unavailable due to data access limits; therefore, comparisons to consensus are not included (S&P Global data unavailable).
• Implications: Record EPS and O&P Americas EBITDA near $1B may prompt upward revisions to segment profitability assumptions; however, management’s explicit caution on Q3 impacts from La Porte restart delays likely tempers near-term EPS and volume expectations .

Key Takeaways for Investors

• Operational strength delivered record EBITDA ($1.94B) and EPS ($2.22), with broad-based segment contribution; underlying macro tailwinds (low ethane/NGL) remain intact .
• Reliability issues at La Porte are the main near-term risk; expect Q3 production/sales impact before expanded capacity benefits in late Q3 .
• Oxyfuels seasonal strength and improved acetyls/styrene supported I&D; Europe ran at ~95% rates with advantaged feedstocks, bolstering EAI margins .
• Refining performance improved YoY (EBITDA +$117M vs. Q2’13) with steady spreads and better yields; RIN costs stable QoQ and down YoY .
• Capital deployment continues to drive per-share value: second 10% buyback initiated; ~$370M dividends paid in Q2; diluted share count down to 527M .
• Growth pipeline on track: La Porte 800M lb/yr (Q3 start), Channelview (early 2015), Corpus (late 2015) — expect incremental capacity and cost advantages .
• Trading lens: Positive momentum from record results and buybacks vs. near-term Q3 production headwinds; watch ethane/NGL pricing and La Porte ramp timing for estimate recalibration .