Methanex Falls on Big Earnings Miss - Analyst Blog

Chemical maker Methanex MEOH saw its profit zoom in the first quarter of 2014 as higher methanol pricing and increased production resulting from its capacity expansion measures boosted the bottom line. However, the company's shares dropped as its earnings missed expectations.

Methanex posted earnings of $1.50 per share in the quarter, a more than two-fold surge from 63 cents per share logged a year-ago. Profit jumped 142% to $145 million from $60 million a year ago. Earnings per share, however, fell well short of the Zacks Consensus Estimates of $1.84.

Methanex's adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $255 million in the quarter, a roughly 71% jump from $149 million recorded a year ago. The healthy improvement came on the heels of higher average realized price and increased sales of Methanex-produced methanol.

Revenues shot up roughly 48% year over year to $968 million in the reported quarter on better pricing and higher methanol sales volumes, backed by healthy demand. However, it missed the Zacks Consensus Estimate of $1,003 million.

Average realized price was $524 per ton in the quarter, up 27% from $412 per ton a year ago. Total production was 1,226,000 tons, a 15% rise from 1,063,000 tons in the prior-year quarter, aided by the company's capacity expansion initiatives across its New Zealand and Medicine Hat operations. Methanex-produced methanol sales volume rose 19% year over year to 1,228,000 tons.

Separately, the Vancouver-based company beefed up its dividend by 25% and announced a new share buyback program.

Methanex's shares sagged as much as around 5% in the trading session following the earnings announcement, reflecting the lower-than-expected results. The stock closed at $62.00 yesterday, losing around 3%.

Production Summary

New Zealand: Methanex produced 500,000 tons in the quarter, up 62% from 309,000 tons produced a year ago. With its three facilities operating at full capacity, the company is able to produce up to 2.4 million tons a year at the site.

Trinidad: Methanex's fully-owned Titan facility produced 149,000 tons in the quarter, down roughly 18% from 181,000 tons produced in the year-ago quarter. An unplanned outage coupled with gas curtailment issues impacted production in the quarter.

The Atlas facility, in which the company holds a 63.1% interest, produced 249,000 tons, essentially flat year over year. Methanex is encountering natural gas supply restrictions in Trinidad. Although the company is trying to find a solution to this problem, it continues to experience natural gas curtailments at the site.

Egypt: The facility produced 139,000 tons in the quarter, up 4.5% from 133,000 tons produced a year ago. It has also been experiencing periodic natural gas supply restrictions since mid-2012, which is expected to persist in the future due to increased electricity demand during summer months.

Medicine Hat: The facility produced 122,000 tons in the quarter, down 7% from 131,000 tons produced last year. The facility experienced unplanned outage during the fourth quarter of 2013 and was restarted in Jan 2014.

Chile: Methanex's Chile operations produced 67,000 tons in the reported quarter, up 10% from 61,000 tons a year ago. It operated one facility at roughly 60% of production capacity.

Methanex expects to idle its Chile operations in early May due to lack of sufficient natural gas feedstock to keep its plant operating through the southern hemisphere winter. The availability of sustainable natural gas supplies from Chile and Argentina and the level of exploration and development in southern Chile are instrumental in determining the future of the Chile operations.

Geismar, Louisiana: Methanex is progressing with the relocation of two idle Chile facilities to Geismar, LA (Geismar I and Geismar II). The company expects to produce methanol from the 1 million ton Geismar 1 facility in late 2014 and from the 1 million tonne Geismar 2 facility in early 2016. During the reported quarter, Methanex made capital spending of $130 million related to these projects, barring capitalized interest.

Financials

Consolidated cash flows from operating activities climbed around 52% year over year to $179 million in the reported quarter. Cash and cash equivalents were $709 million, down 2% year over year. Long-term debt was $1,106.9 million, down 3% year over year.

Methanex's Board approved a 25% raise in its quarterly dividend to 25 cents per share from 20 cents, representing 10th increase in dividend payout since its beginning in 2002. The company also announced a new share repurchase program that authorizes it to buyback roughly 5% of its issued and outstanding shares as of Apr 29, 2014.

Outlook

Moving ahead, Methanex expects earnings and EBITDA for the second quarter to be lower than the first based on moderating methanol pricing resulting from additional supply in the market, especially in Asia Pacific.

Methanex also stated that methanol price will depend on a number of factors such as economic health, operating rates, global energy prices, new supply additions and demand. The company believes that its healthy financial position, strong global supply network and competitive-cost position will strengthen its position as the global leader in the methanol industry and enable it to maintain its position and invest in growth initiatives.

Methanex is a Zacks Rank #3 (Hold) stock.

Other chemical stocks worth considering include Eastman Chemical Co. EMN, The Dow Chemical Company DOW and Cabot Corporation CBT with all retaining a Zacks Rank #2 (Buy).