Sign in
LI

LyondellBasell Industries N.V. (LYB)·Q4 2017 Earnings Summary

Executive Summary

  • Reported EPS was $4.80, boosted by a one-time, non-cash $819M tax reform benefit ($2.07 per share); underlying EPS ex-tax was approximately $2.73, broadly in line with Q3’s $2.67 .
  • Revenue increased sequentially to $9.135B (+7% q/q; +18% y/y), while consolidated EBITDA declined to $1.726B amid mix and LIFO effects; O&P Americas improved, Refining strengthened on LIFO, but O&P EAI fell on higher feedstock costs and seasonal volumes .
  • 2018 guidance introduced: ~21% effective tax rate, ~$2.4B capex, ~$375M net cash interest, ~$1.2B D&A, ~$110M pension contributions, ~$65M pension expense; cash tax rate expected 3–5pp above ETR due to payments for prior non-U.S. income .
  • Near-term operational headwinds flagged: January cold weather ($45M impact) and planned Channelview cracker maintenance ($100M, ~50% in Q1), plus European cracker maintenance later in 2018 .
  • Strategic catalyst: subsequent agreement to acquire A. Schulman (announced Feb 15, 2018), adding compounding scale and recycling exposure with CVRs attached to litigation proceeds .

What Went Well and What Went Wrong

  • What Went Well

    • O&P Americas saw margin recovery and volume normalization post-Harvey; ethylene margins +$0.05/lb q/q and combined polyolefins +~$40M q/q; EBITDA +$168M q/q to $784M .
    • Refining strengthened: EBITDA rose to $104M (+$46M q/q), aided by a $38M LIFO benefit and improved heavy-to-light differentials; throughput reached 245 kbpd .
    • I&D maintained momentum: quarterly EBITDA of $410M (+$104M y/y) on stronger PO/derivatives and intermediate chemical margins; volumes improved as Harvey effects faded .
    • Quote: “Strong global demand and delays in capacity additions…improved the outlook for 2018” – CEO Bob Patel .

  • What Went Wrong

    • O&P EAI EBITDA fell sharply q/q to $356M (−$342M), pressured by higher feedstock costs (ethylene margins −$0.06/lb), seasonal sales declines, and a Wesseling cracker outage (~$40M impact); pension settlement and LIFO charges added ~$40M of negative items .
    • Consolidated EBITDA down sequentially to $1.726B despite revenue growth, reflecting segment mix, LIFO charges in O&P and I&D, and seasonal oxyfuels margin weakness .
    • Non-operational distortion: $819M tax reform benefit inflated EPS by $2.07/share, complicating comparison to underlying performance .
    • Analysts probed buyback cadence; no shares repurchased in Q4 due to 10b5-1 grid constraints, highlighting opportunistic approach rather than steady execution .

Financial Results

MetricQ2 2017Q3 2017Q4 2017
Sales and other operating revenues ($USD Millions)8,403 8,516 9,135
EBITDA ($USD Millions)1,970 1,821 1,726
Diluted EPS ($USD)2.82 2.67 4.80
Income from continuing operations ($USD Millions)1,134 1,058 1,898
Operating income ($USD Millions)1,577 1,332 1,341
Tax reform EPS effect ($/share)——2.07

Segment EBITDA breakdown ($USD Millions):

SegmentQ2 2017Q3 2017Q4 2017
O&P – Americas859 616 784
O&P – Europe, Asia & International699 698 356
Intermediates & Derivatives339 402 410
Refining25 58 104
Technology48 47 68

Key KPIs:

KPIQ2 2017Q3 2017Q4 2017
Ethylene produced – O&P Americas (mm lbs)2,606 2,088 2,442
Polyethylene sold – O&P Americas (mm lbs)1,404 1,454 1,592
Ethylene produced – O&P EAI (mm lbs)1,069 1,046 927
Heavy crude processing rate (kbpd)265 240 245
Net cash provided by operating activities ($USD Millions)1,560 1,486 1,482

Notes on non-GAAP/one-off items:

  • LIFO: O&P Americas (−$22M), O&P EAI (−$20M), I&D (−$17M), Refining (+$38M) .
  • Pension settlements impacted O&P EAI (−$20M q/q; +$12M vs prior year) .
  • Tax reform: $819M non-cash benefit; EPS +$2.07/share .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Effective tax rateFY 2018N/A~21% ETR New
Cash tax rateFY 2018N/A~3–5pp above ETR (timing of non-U.S. tax payments) New
Capital expendituresFY 2018N/A~$2.4B; ~55% growth, focused on Hyperzone PE & PO/TBA New
Net cash interest expenseFY 2018N/A~$375M New
Depreciation & amortizationFY 2018N/A~$1.2B New
Pension contributionsFY 2018N/A~$110M New
Pension expenseFY 2018N/A~$65M New
Share repurchasesFY 201810% authorization (May ‘17); opportunistic execution Continue opportunistic; no Q4 purchases due to plan grid Maintained
DividendOngoingQuarterly dividend increased to $0.90/share in Q2 ‘17; progressive policy Policy maintained Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Ethylene/PE supply-demandQ2: Shallow cycle expected; PE capacity phased ahead of crackers; exports key . Q3: Seasonal patterns supportive; Harvey tightened markets; Q4 impacts ~$100M (La Porte) .Operating rates to remain mid–low 90s; tight markets; seasonal strength expected; January weather disruption tightens backdrop .Constructive near-term; modest rate moderation through 2019 .
Feedstocks (ethane/naphtha)Q2: Abundant ethane near Gulf Coast; LPG/naphtha slate optimization in Europe . Q3: Higher naphtha costs compress EAI olefin margins .Ethane supply sufficient as oil ramps; more Permian NGLs; EAI margins pressured by feedstock cost increases .Ethane ample; EAI margins sensitive to feedstock costs.
Refining & IMO 2020Q2/Q3: Reliability improving; IMO seen as a potential tailwind; distillate spreads supportive .Q4: Sequential EBITDA improvement; focus on reliability; IMO could add “hundreds of millions” to profitability; maintain asset .Positive trajectory; medium-term catalyst from IMO.
I&D product marketsQ2: PO/TBA strength; oxyfuels seasonal; precious metal catalyst charges earlier in year . Q3: Styrene/methanol margins improving .Q4: PO/derivatives and intermediate chemicals up $120M y/y; oxyfuels seasonal softness; precious metals −$35M .Favorable margins; manageable headwinds.
M&A / Inorganic growthQ2/Q3: Disciplined, value-focused; close to core chains .Subsequent agreement to acquire A. Schulman; strategic compounding scale; CVR structure for litigation proceeds .Executing disciplined bolt-on strategy.
PDH/Propylene & downstream PPQ2/Q3: Evaluating PDH vs merchant buy; PP expansions considered in NA/EU .PDH leading option; still expect to remain merchant buyer even with PDH; PP expansions in pipeline .Advancing project pipeline; FID timing not specified in Q4.

Management Commentary

  • “Over the past several months, strong global demand and delays in capacity additions…have improved the outlook for 2018.” – Bob Patel .
  • CFO on tax reform: “We expect our global effective tax rate will be approximately 21% [in 2018]…We do not expect any material impact from deemed repatriation, interest deductibility limit or the base erosion provision.” .
  • 2018 modeling guidance: Capex ~$2.4B; net cash interest ~$375M; D&A ~$1.2B; pension contributions ~$110M; pension expense ~$65M .
  • Near-term operational note: “Unusually cold weather…estimated to reduce first quarter results by approximately $45 million…planned maintenance…estimated to have a $100 million impact, ~50% in the first quarter.” .
  • Refining: “We look forward to stronger contributions from our refinery in 2018.” – CEO .

Q&A Highlights

  • Ethylene/PE margin outlook: Management expects firm market conditions through most of 2018; seasonal demand support and tightness from weather/maintenance; operating rates mid–low 90s .
  • Share repurchase cadence: No Q4 buybacks due to 10b5-1 grid; commitment to opportunistic repurchases remains; AGM to seek additional 10% approval .
  • China reforms & recycling: Near-term tailwind as recycled resin shifts; China’s reforms tighten supply; positive for virgin PE operating rates .
  • Ethane supply: Sufficient/excess ethane expected near Gulf Coast as oil/NGL output rises; new pipelines/fracs support crackers .
  • Refinery strategy: Focus on reliability; IMO 2020 could materially improve margins; maintain asset rather than separation decision now .
  • PDH & propylene sourcing: PDH viewed as leading option despite recent start-up challenges in industry; LYB would still remain a merchant buyer .
  • Guidance clarification: Cash tax rate to run 3–5pp above ~21% ETR in 2018 due to payments for prior years; pension settlement charge mechanics explained .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2017 EPS and revenue was unavailable due to data limits, so beat/miss cannot be stated definitively. Based on reported figures, underlying EPS ex-tax (~$2.73) was broadly comparable to Q3 ($2.67), and revenue increased sequentially, but consolidated EBITDA declined, reflecting mixed segment trends .
  • Where estimates are needed for trading decisions, obtain S&P Global consensus prior to execution; the company flagged non-operational items (tax reform, LIFO, pension) that would affect comparability .

Key Takeaways for Investors

  • Underlying Q4 earnings quality: EPS inflated by $2.07/share from tax reform; strip that out and Q4 was operationally similar to Q3 with lower consolidated EBITDA; focus on segment-level momentum (O&P Americas, Refining) versus headwinds (O&P EAI) .
  • 2018 setup: 21% ETR is a structural tailwind; capex ramp ($2.4B) concentrates on Hyperzone PE and PO/TBA, supporting medium-term EBITDA growth; model cash tax rate a few points above ETR in 2018 .
  • Near-term risk: Q1 weather/maintenance likely to trim results by ~$95M combined; watch Channelview turnaround and European cracker maintenance cadence .
  • Refining optionality: Reliability improvements and IMO 2020 could add meaningful profitability; treat as a potential 2020 catalyst rather than a disposal candidate .
  • O&P Americas resilience: Ethane advantage and polyethylene spreads remain supportive; monitor PE price initiatives and export normalization as comonomer supply recovers .
  • EAI sensitivity: Higher feedstock costs and seasonal factors can swing margins; pension/LIFO can add noise; expect recovery with maintenance behind and market tightness .
  • Strategic bolt-on: A. Schulman deal expands compounding/recycling; CVR structure offloads litigation uncertainties; integration and synergy realization are watch items .

Additional Notes and Cross-References

  • Full-year highlights: 2017 income from continuing operations $4.895B; EBITDA $7.134B; cash from operations $5.206B; dividends $1.4B; share repurchases 10M shares; cash and liquid investments $3.4B at YE .
  • Segment ops detail: O&P Americas full-year EBITDA $2.982B; EAI record full-year EBITDA $2.282B; I&D full-year EBITDA ~$1.49B; Refining full-year EBITDA $157M; Technology full-year EBITDA $223M .
  • Non-GAAP reconciliation provided in Exhibit Table 8; interpret EBITDA margins alongside revenue for period comparisons .

All figures above are sourced from company filings and transcripts as cited.