ARKAY Arkema (PK)

Methanex Corporation’s (MEOH) adjusted earnings (excluding one-time items other than stock-based compensation expenses) of 56 cents per share for the fourth quarter of 2012 missed the Zacks Consensus Estimate of 58 cents, reflecting a negative surprise of around 3.5%.

On a reported basis, the company posted a loss of $1.49 per share in the reported quarter compared with earnings of 68 cents a share a year ago. The bottom line was hurt by a hefty asset impairment charge (of roughly $297 million).

For the full year, adjusted earnings were $1.77 per share, trailing the Zacks Consensus Estimate of $1.83. On a reported basis, Methanex recorded a loss of 73 cents a share for the year versus earnings of $2.06 per share a year ago.

Revenues remained flat year over year at $695.7 million, missing the Zacks Consensus Estimate of $708 million. Sales volumes in the quarter totaled 1,899,000 tons, down 0.3% from the year-ago quarter.

Average realized price per ton amounted to $389 in the quarter, compared with $388 a year ago. Total production in the quarter was 1,067,000 tons compared with 961,000 tons in the prior-year quarter. Sales of Methanex-produced methanol were 1,059,000 tons versus 1,052,000 tons a year ago.

For the full year, revenues totaled $2672.9 million, down 2.5% year over year, missing the Zacks Consensus Estimate of $2,678 million.

Production Summary

Chile: In the reported quarter, the company produced 59,000 tons in Chile, operating one plant at approximately 20% capacity, versus 113,000 tons in the prior-year quarter. The gas supply outlook in Chile is challenging and the company announced that it will idle its Chile operations in March 2013 due to the lack of natural gas feedstock. Metahnex is continuing to work with Empresa Nacional del Petroleo (ENAP) and others to secure sufficient natural gas to sustain its operations.

The availability of natural gas supply, level of exploration and development in southern Chile are instrumental in determining the future of Chile operations.

New Zealand: Methanex produced 378,000 tons in the quarter, much higher than 211,000 tons produced last year. The company is assessing the possibility of restarting its nearby Waitara Valley plant which could add up to a further 900,000 tons of annual production in New Zealand.

Trinidad: Methanex owns two facilities in Trinidad. The company’s Titan facility, in which it holds full ownership, produced 189,000 tons in the fourth quarter, lower than 180,000 tons produced last year, mainly due to periodic natural gas curtailments.

The Atlas facility, in which the company holds a 63.1% interest, produced 180,000 tons in the quarter, higher than 195,000 tons produced last year. The company is facing natural gas supply restrictions in Trinidad. Although it is trying to find a solution to this problem, Methanex expects to experience natural gas curtailments in the short term.

Egypt: The facility produced 129,000 tons in the quarter, down from 132,000 tons it produced a year ago. The decline in production was a result of planned maintenance disruptions and natural gas supply restrictions.

The company faced periodic natural gas shortages in this region as well due to increased electricity demand and seasonal domestic demand for natural gas electricity generation. Methanex has a 60% interest in the Egyptian facility.

Medicine Hat: The facility produced 132,000 tons in the quarter, down from 130,000 tons produced last year. Methanex is currently de-bottlenecking the facility, a move which can add another 90,000 tons of annual production capacity to Medicine Hat operation by the end of the third quarter of 2013.

Financial Position

Consolidated cash flows from operating activities declined 38% to $98 million in the fourth quarter from $158 million in the prior-year quarter. The company ended the year with a strong liquidity position with cash and cash equivalents of $745.6 million, up 112.6% year over year. Long-term debt as of December 31, 2012, was $1,191.9 million, compared with $652.1 million as of December 31, 2011.

Dividend

The company paid quarterly dividend of 18.5 cents per share to its shareholders in the fourth quarter for a total of $17 million.

Outlook

Methanex feels that the methanol industry and its pricing environment would appear to be attractive in the longer term as global demand is expected to surpass new capacity additions.

The company stated that methanol price will depend on a number of factors such as economic health, operating rates, global energy prices 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 continue to deliver incremental returns to shareholders.

With the continued initiatives to increase production in New Zealand and progress in the Louisiana project, the company has the potential to increase its operating capacity by nearly 3 million tons over the next few years, which in turn, will contribute to cash generation and increased supply to customers.

Methanex, retains a short-term (1 to 3 months) Zacks Rank #5 (Strong Sell).

Other companies in the chemical industry with favorable Zacks Rank are Arkem S.A. (ARKAY), BASF SE (BASFY) and Air Products and Chemicals (APD). While Arkem is carrying a Zacks Rank #1 (Strong Buy), both BASF and Air Products hold a Zacks Rank #2 (Buy).
 

 
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