Mixed Bag from Methanex in 3Q
Methanex Corporation (MEOH), the world’s largest supplier of methanol, reported adjusted earnings of 38 cents per share for the third quarter of 2012 compared with 43 cents per share registered in the same period last year. The results surpassed the Zacks Consensus Estimate of 30 cents per share, reflecting a positive surprise of around 26.7%
Revenues dipped 2.1% year over year to $655.3 million, missing the Zacks Consensus Estimate of $659 million. Sales volumes in the quarter totaled 1,899 million tons, up 0.5% from the year-ago quarter.
Average realized price per ton amounted to $373 in the quarter, down from $377 a year ago. Total production in the quarter was 1,025,000 tons compared with 1,035,000 tons in the prior-year quarter. Sales of Methanex-produced methanol were 1,053,000 tons versus 983,000 tons a year ago.
Production Summary
Chile: In the reported quarter, the company produced 59,000 tons in Chile, operating one plant at approximately 20% capacity versus 116,000 tons in the prior-year quarter. The company operated its methanol facilities in Chile significantly below the site capacity due to curtailed natural gas supplies from Argentina.
However, the company is focused on resolving this problem and continues with its investment opportunities with Empresa Nacional del Petroleo (:ENAP), GeoPark Chile Limited (Geo Park) and others for accelerating natural gas exploration and development in southern Chile. Roughly 90% of production at the company’s Chilean facilities was produced from the supplies from Fell and Dorado Riquelme blocks.
New Zealand: Methanex produced 346,000 tons in the quarter, much higher than 209,000 tons produced last year. The company restarted its second Motunui facility in July, adding 650,000 tons of annual production capacity to its operations in New Zealand.
Methanex is also focused on removing bottlenecks at the Motunui site and is currently carrying out feasibility studies for the same. Methanex aims to restart the 530,000 ton capacity Waitara Valley plant which is capable of adding 900,000 tons to New Zealand’s annual production capacity by the end of next year.
Trinidad: Methanex owns two facilities in Trinidad. The company’s Titan facility, in which it holds full ownership, produced 186,000 tons in the third quarter, lower than 224,000 tons produced last year, mainly due to unplanned maintenance disruptions and periodic natural gas curtailments.
The Atlas facility, in which the company holds a 63.1% interest, produced 255,000 tons in the quarter, higher than 170,000 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 62,000 tons in the quarter, significantly down from 191,000 tons that 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 upstream gas platform outages and seasonal domestic demand for natural gas electricity generation. Methanex has a 60% interest in the Egyptian facility.
Medicine Hat: The facility produced 117,000 tons in the quarter, down from 125,000 tons produced last year. Methanex is currently exploring the feasibility of de-bottlenecking the facility, a move which can add another 90,000 tons of annual production capacity to Medicine Hat.
Financial Position
Consolidated cash flows from operating activities in the third quarter rose 10.08% to $131 million from $119 million in the prior-year quarter. The company ended the quarter with a strong liquidity position with cash and cash equivalents of $403 million, up roughly 54.5% year over year. Long-term debt as of September 30, 2012, was $855.5 million, up 31.2% from the last year.
Dividend
The company paid its quarterly dividend of 18.5 cents per share to its shareholders for a total of $17 million in the third quarter.
Outlook and Recommendation
Methanex feels that the methanol industry and its pricing environment appear attractive in the longer term as global demand is expected to surpass new capacity additions. The company, however, sees upward pressure on methanol prices in the fourth quarter stemming from steady demand and industry outages. It further noted that methanol price will depend on a number of factors such as economic health, operating rates, global energy prices and demand.
With the continued initiatives to increase production in the New Zealand and Medicine Hat units and progress in the Louisiana project, the company has the potential to increase its operating capacity by nearly 2 million tons over the next two years, which in turn, will contribute in cash generation.
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.
Methanex, which faces stiff competition from Celanese Corp. (CE) and Eastman Chemical Co. (EMN), retains a short-term (1 to 3 months) Zacks #3 Rank (Hold). We currently have a long-term (more than 6 months) Underperform recommendation on the stock.
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