Zacks_Analysts' Blog : Methanex 1Q Surpasses Consensus - Analyst Blog

Methanex Corporation (MEOH), the world’s largest supplier of methanol, earned $34.6 million or 37 cents in the first quarter of 2011 versus last year’s net income of $27.0 million or 29 cents. Earnings were above the Zacks Consensus Estimate of 23 cents.

Revenues

Quarterly revenues of $619 million outshined the Zacks Consensus Estimate of $569 million and exceeded from year-ago revenues of $466.7 million, led by volume and pricing gains.

Total methanol sales volumes excluding commission sales volumes for the first quarter of 2011 were higher compared with the first quarter of 2010 by 155,000 tonnes. The higher sales volumes resulted in higher Adjusted EBITDA of $13 million.

Costs

Besides producing Methanol, Methanex also trades in it. During the reported quarter, the company purchased a higher proportion of methanol, which led to higher costs. Rising natural gas prices increased its costs further.

During the first quarter of 2011, approximately $21 million in costs were capitalized to the Egypt plant under construction.

Financial Review

Cash flows from operating activities before changes in working capital in the first quarter of 2011 were $80 million compared with $91 million in the first quarter of 2010.

During the first quarter of 2011, debt principal payment of $16 million was paid on the Egypt limited recourse debt facilities.

Dividend

During the first quarter of 2011, Methanex paid a quarterly dividend of $0.155 per share or $14 million. Additionally, the board of directors also approved a 10% increase in its quarterly dividend to shareholders from $0.155 to $0.17 per share. The increased dividend will be commencing with the dividend payable on June 30, 2011 to shareholders of common shares of record as of June 16, 2011.

Outlook

For second-quarter 2011, demand continues to be strong and Methanex expects market conditions to remain relatively balanced.

Management anticipates a significant increase in production in the second quarter of 2011. The new 1.26 million tonne per year methanol facility in Egypt has been operating well since mid-March and shipments started in early April. Methanex is currently commissioning its 470,000 tonne per year plant in Medicine Hat, Alberta with production of first methanol in late April. With the addition of these two production sites, the company is well positioned to increase production and earnings capability in 2011.

The methanol price will ultimately depend on the strength of the global economy, industry operating rates, global energy prices, rate of industry restructuring and the strength of global demand. Management believes that the financial position and financial flexibility, outstanding global supply network and competitive-cost position will provide a sound basis for Methanex to continue to be a leader in the methanol industry and invest for expanding the Company.

Zacks Recommendation

Methanex Corporation is the world’s largest supplier of methanol, and also includes dimethyl ether and bio-diesel businesses. About 80% of Methanex’s total methanol output is used in the production of formaldehyde, acetic acid and a variety of other chemicals. These chemical derivatives are used to manufacture a wide range of products including plywood, particle board, foams, resins and plastics. Demand for methanol largely stems from the energy sector for the production of methyl tertiary-butyl ether, a gasoline component and a direct fuel for motor vehicles.

Weak pricing as well as an increase in global inventories, are negatively affecting the company. Moreover, Methanex operates its Chilean facilities substantially below capacity due to natural gas supply outages, which resulted in a 39.8% drop in production to $183,000 tons in the reported quarter.

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 Underperform recommendation.