Celanese Corp. (CE), a Dallas chemical company, is counting on a rebound in cigarette smoking and soda-pop drinking to drive its earnings higher in 2011 and 2012.
As part of its consumer specialty segment, Celanese manufactures a sweetener for soft drinks and a product that is used for cigarettes filters. Its customers include Altria Group Inc. (MO), its Philip Morris International (PM) spin-off, and PepsiCo Corp. (PEP).
"These tend to go into decline later in the cycle. We think that demand has bottomed out," Dave Weidman, chief executive and chairman of Celanese said in an interview Tuesday. But he was cautious about seeing any improvement for 2010, instead forecasting increases in the next two to three years.
Celanese swung to a small fourth-quarter profit Tuesday and topped analyst expectations. But the consumer specialty segment, what Weidman describes as a " late-cycle business," saw a volume decline because of soft demand for cigarettes and soft-drinks in global recession.
In January, Altria, the biggest U.S. tobacco producer, reported about a 11% to 12% decline in cigarette volumes in the fourth quarter and has a cautious outlook for the following year. "The business environment for 2010 is likely to remain challenging as many consumers continue to be under economic pressure based on high unemployment," Michael Szymanczyk, chairman and chief executive of Altria, said during an earnings conference call Jan. 28. Pepsi and Philip Morris International are scheduled to report quarterly results Thursday.
Celanese has three business segments that manufacture other chemicals used in paints, textiles and medical devices. The company has more than 30 industrial plants in North America, Europe and Asia.
The $4.2 billion company is "aggressively" pursuing several acquisitions that range in size of a few million dollars to just under $500 million in all three of geographic locations, Weidman said. "We like to stay in businesses that are similar to businesses that we have today," Weidman said. Weidman declined to give a timeline for when any of these deals could close.
Its largest segment by revenue, the acetyl intermediates division, had " significant volume recovery and margin expansion" in the fourth quarter. Its revenue climbed 13% as the segment returned to profitability.
"Much of the beat came from very strong results in the company's core acetyl intermediates business from which the company generates over 50% of its revenues," Hassan Ahmed, an analyst with Alembic Global Advisors in New York, wrote in a note to clients.
Celanese posted earnings of $5 million, or 2 cents a share, compared with a prior-year loss of $155 million, or $1.09 a share.
Excluding impacts such as income-tax gains and provisions, the latest quarter had a 50-cent profit from continuing operations while the year earlier had a 40- cent loss. Revenue rose 7.9% to $1.39 billion on improved demand.
Weidman expects that in the next year Celanese's earnings per share should increase because the company has closed plants in Europe and Mexico meaning it will have lower taxes and less depreciation to report.
Shares of Celanese rose 40 cents, or 1.4%, to $29.97.
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