Morningstar | Celanese Reports Decent Second-Quarter Results; Shares Fairly Valued. See Updated Analyst Note from 23 Jul 2019
Celanese's second-quarter results were impacted by falling acetic acid prices and weak demand as operating EBITDA fell 20% year on year to $458 million during the quarter. However, management maintained full-year 2019 guidance for adjusted EPS of $10.50 per share, which we continue to think is achievable. With our outlook largely unchanged, we raise our fair value estimate to $107 per share from $105 due to time value of money effects. Our narrow-moat rating remains unchanged. At current prices, we view Celanese as fairly valued with shares trading in 3-star territory.In the acetyl chain segment, which produces acetic acid and other commodity chemical derivatives, operating EBITDA fell 27.5% year on year to $227 million as prices and volumes fell 14% and 3% year on year, respectively. The price declines were primarily driven by 10% a decline in acetic acid demand in China as the effects of the trade dispute between the U.S. and China weighed on Celanese's downstream customers.
As a partial offset to weak demand, we expect Celanese to benefit from lower U.S. natural gas prices, a benefit that should be magnified over the next several years as Celanese expands its U.S. acetyl chain production, while shutting down higher-cost capacity in Asia. As a result, we expect operating EBITDA margins to remain in the mid-20% range.
In the downstream engineered materials segment, operating EBITDA fell 13.5% year on year to $179 million during the quarter due to lower volumes and currency headwinds. However, pricing remained stable versus a year ago. Acetyl chain segment products are used as inputs for engineered materials products. Against a backdrop of falling input prices, we think the stable prices in the engineered materials segment demonstrates some degree of pricing power for the downstream business. As volumes eventually recover in the engineered materials segment, we forecast operating EBITDA margins will expand from the 31.6% achieved in 2018 to 33% by 2023.
Celanese is a holding company. Through its subsidiaries, the company is a chemical and specialty materials company. The company is a producer of engineered polymers and a producer of acetyl products, which are intermediate chemicals. The company's segments are: Engineered Materials, which develops, produces and supplies a portfolio of specialty polymers for automotive and medical applications, as well as industrial products and consumer electronics; Acetate Tow, which is a producer and supplier of acetate tow and acetate flake, primarily used in filter products applications; and Acetyl Chain, which includes the chain of intermediate chemistry, emulsion polymers and ethylene vinyl acetate polymers businesses.
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