Methanex Corporation (MEOH), the world’s largest supplier of methanol, earned $62.3 million or 59 cents per share in the third quarter of 2011 versus last year’s net income of $28.7 million or 31 cents per share. Earnings missed the Zacks Consensus Estimate of 60 cents per share.
Quarterly revenues of $669.7 million exceeded year-ago revenues of $481.0 million.
Total methanol sales volumes excluding commission sales volumes for the third quarter of 2011 stood at 1,890 thousand tonnes versus 1,778 thousand tonnes in the third quarter of 2010.
The higher sales volumes were due to increased supply from the Egypt and Medicine Hat methanol facilities which was offset by lower sales of methanol produced at Atlas and Chile facilities. This increased EBITDA by $12 million in the quarter.
Total production climbed to 1.04 million tons in the third quarter of 2011 from 895,000 tons in the third quarter of 2010.
Production Summary
Chile–During the reported quarter the company produced 116,000 tons in Chile operating one plant at approximately 40% capacity versus 142,000 tons in the sequential quarter and 194,000 tons in the prior year quarter. The company operated its methanol facilities in Chile significantly below site capacity due to curtailed natural gas supplies from Argentina.
Lower production at the Chile facilities during the third quarter of 2011 compared with the second quarter of 2011 was due to the need for the state-owned energy company Empresa Nacional del Petroleo (ENAP) to satisfy incremental natural gas demand for residential purposes in southern Chile during the winter season when residential energy demand is at its peak, as well as declines in the deliverability from existing gas fields.
Trinidad–Third quarter of 2011 produced 394,000 tons compared with 449,000 tons during the second quarter of 2011 and 501,000 tons in the year ago quarter. Lower production in the third quarter of 2011 versus the sequential quarter was primarily due to an unplanned outage at its Atlas facility which lasted approximately 21 days.
The company restarted operations at its Atlas facility in mid-August and has since operated the plant at approximately 70% capacity. The company expects to keep operating the plant at approximately 70% capacity until the next major turnaround scheduled for early 2012.
New Zealand–During the third quarter of 2011, Methanex produced 209,000 tons versus 207,000 tons during the second quarter of 2011 and 200,000 tons in the year ago quarter. There has been continued improvement in the natural gas supply outlook in New Zealand and the company remains focused on accessing additional natural gas supply to increase production in New Zealand.
Egypt–Methanex has a 60% interest in the facility and has marketing rights for 100% of the production. In the reported quarter, the Egyptian methanol facility produced 191,000 tons versus 178,000 tons during the second quarter of 2011.
Medicine Hat-In The facility produced 125,000 tons in the third quarter of 2011 versus 74,000 tons during the second quarter of 2011. The company has a program to purchase natural gas from the Alberta gas market and has contracted sufficient volumes of natural gas to meet over 80% of its natural gas requirements. The remainder of natural gas will be purchased on the spot market.
Financial Review
Consolidated cash flows from operating activities in the third quarter of 2011 were $119.1 million compared with $77.6 million for the second quarter of 2011 and $61.4 million for the third quarter of 2010.
Adjusted cash flows from operating activities, which exclude the amounts associated with the 40% non-controlling interest in the methanol facility in Egypt and changes in non-cash working capital, were $103.6 million in the third quarter of 2011 versus $86.5 million for the second quarter of 2011 and $64.7 million for the third quarter of 2010.
Dividend
During the third quarter of 2011, Methanex paid a quarterly dividend of 17 cents per share, or $16 million.
Outlook
In fourth-quarter 2011, the company expects that its new 1.26 million tons per year methanol facility in Egypt and 470,000 tons per year plant in Medicine Hat, Alberta will increase its earnings capability. This will however be partially offset in the short-term by the impact of its Atlas facility producing at reduced rates until the next scheduled turnaround planned for early 2012.
The methanol price depends on the strength of the global economy, industry operating rates, global energy prices, new supply additions, the rate of industry restructuring and the strength of global demand.
Methanex expects that its financial position and financial flexibility, outstanding global supply network and competitive-cost position will provide a sound platform for furthering its leadership in the methanol industry.
Zacks Recommendation
Methanex Corporation is the world’s largest supplier of methanol with a 15% market share. It supplies to North America, Asia-Pacific, Europe and Latin America. About 80% of all methanol output is used in the production of formaldehyde, acetic acid, and a variety of other chemicals.
These chemical derivatives are used in the manufacture of a wide range of products including plywood, particleboard, foams, resins and plastics. The remainder of methanol demand largely stems from the energy sector for the production of methyl tertiary-butyl ether (MTBE) – a gasoline component – and as a direct fuel for motor vehicles.
As part of its strategy to strengthen its position as the global leader in the production and marketing of methanol, Methanex intends to continue pursuing new opportunities to enhance its strategic position in the methanol industry.
Methanex faces stiff competition from Celanese Corp.(CE) and Eastman Chemical Co. (EMN).
Currently, Methanex has a short-term (1 to 3 months) Zacks #3 Rank (Hold) but a long- term Neutral recommendation.
