LyondellBasell Industries N.V. (NYSE:LYB) - A Resilient Performer Navigating Challenging Market Conditions

Published on September 24, 2024 | Ticker: LYB

LyondellBasell Industries N.V. (NYSE:LYB) is a global leader in the chemical industry, delivering consistent financial performance despite the challenging market environment. The company's diversified portfolio, strategic investments, and focus on operational excellence have enabled it to navigate the volatility and emerge as a resilient performer.

In the fiscal year 2023, LyondellBasell reported annual net income of $2,114 million and annual revenue of $41,107 million. The company's annual operating cash flow stood at $4,942 million, while its annual free cash flow reached $3,411 million. These robust financial metrics demonstrate LyondellBasell's ability to generate substantial cash flow and create value for its shareholders.

During the first quarter of 2024, the company reported earnings of $1.53 per share, with EBITDA reaching $1.1 billion. While cash from operating activities was consumed by $114 million in the quarter, primarily due to a working capital build, LyondellBasell's balance sheet remains strong, with $6.5 billion in available liquidity.

Business Overview

Segmental Performance

LyondellBasell operates through six reportable segments: Olefins and Polyolefins-Americas (O&P-Americas), Olefins and Polyolefins-Europe, Asia, International (O&P-EAI), Intermediates and Derivatives (I&D), Advanced Polymer Solutions (APS), Refining, and Technology.

The O&P-Americas segment reported EBITDA of $521 million in the first quarter of 2024, a decrease from the previous quarter due to the absence of a LIFO inventory valuation benefit. However, the segment benefited from lower feedstock and energy costs, as well as stable domestic polyethylene prices, despite lower volumes from planned and unplanned downtime.

In the O&P-EAI segment, EBITDA increased to $14 million in the first quarter of 2024, driven by higher volumes from near-shoring and increased demand from restocking, particularly in Europe. The segment also benefited from logistical challenges in the Red Sea, which bolstered local European demand.

The I&D segment delivered EBITDA of $312 million in the first quarter of 2024, benefiting from the absence of LIFO inventory charges that impacted the previous quarter. The segment's European propylene oxide and derivatives business saw higher volumes and margins due to logistics disruptions in the Red Sea, while oxyfuels margins declined due to lower premiums.

The APS segment reported EBITDA of $35 million in the first quarter of 2024, an improvement from the previous quarter, driven by higher volumes and variable margins. The segment continues to focus on its transformation, with strategic initiatives aimed at winning new customers and growing the business.

The Refining segment generated EBITDA of $71 million in the first quarter of 2024, benefiting from the absence of LIFO charges that impacted the previous quarter. However, the segment's results were partially offset by lower volumes due to planned and unplanned downtime.

The Technology segment delivered EBITDA of $118 million in the first quarter of 2024, reflecting higher licensing revenue and improved catalyst margins. The segment's performance is expected to remain stable in the second quarter, with revenue associated with licensing milestones decreasing but offset by increased catalyst volumes.

Geographical Breakdown

LyondellBasell's operations span across various regions, with a significant presence in the United States, Europe, and Asia. In the first quarter of 2024, the company's sales and other operating revenues were distributed as follows:

United States: $4,788 million

Germany: $660 million
China: $606 million
Mexico: $436 million
Italy: $401 million
France: $257 million
Poland: $242 million
Japan: $234 million
The Netherlands: $185 million
Other regions: $2,116 million

This geographical diversification has allowed LyondellBasell to capitalize on regional market dynamics and mitigate the impact of localized challenges.

Revenue Breakdown and Trends

LyondellBasell's revenue is generated from a diverse range of products, including olefins and co-products, polyethylene, polypropylene, propylene oxide and derivatives, oxyfuels and related products, intermediate chemicals, compounding and solutions, refined products, and other products.

In the first quarter of 2024, the company's revenue breakdown was as follows:

Olefins and co-products: $908 million

Polyethylene: $1,898 million
Polypropylene: $1,498 million
Propylene oxide and derivatives: $602 million
Oxyfuels and related products: $1,110 million
Intermediate chemicals: $789 million
Compounding and solutions: $960 million
Refined products: $1,958 million
Other products: $202 million

Compared to the first quarter of 2023, the company experienced a 3% decrease in overall revenue, primarily driven by lower average sales prices for many of its products, which offset a 3% increase in revenue due to higher volumes.

Outlook

Looking ahead, LyondellBasell expects to see typical seasonal improvements in demand across most of its segments in the second quarter of 2024. The company anticipates that its U.S. and Middle East production will continue to benefit from advantaged natural gas-based feedstock and energy costs compared to oil-based peers.

Additionally, the company remains committed to delivering $600 million of recurring annual EBITDA by the end of 2024 through its Value Enhancement Program, which has become an integral part of the company's culture. LyondellBasell is also making progress on its long-term strategy, which includes growing and upgrading its core businesses, as well as building a profitable Circular and Low-Carbon Solutions (CLCS) business.

In the CLCS business, LyondellBasell has set a target of at least 2 million tons per year of recycled and renewable-based polymer sales by 2030, with an expected incremental EBITDA contribution of $500 million by 2027 and $1 billion by 2030. The company is making strategic investments across the value chain, from waste sourcing and advanced sorting to mechanical and advanced recycling, to capture the growing demand for sustainable solutions.

Liquidity

LyondellBasell's balance sheet remains strong, with $6.5 billion in available liquidity as of the end of the first quarter of 2024. The company has $11 billion in long-term debt with an average maturity of 18 years and a 4% average cost of debt.

LyondellBasell's capital allocation strategy focuses on providing returns to shareholders through dividends and share repurchases, while also investing in growth and sustainability initiatives. Over the last 12 months, the company has returned $1.8 billion to shareholders through dividends and share repurchases.

Risks and Challenges

Like any global chemical company, LyondellBasell faces various risks and challenges, including volatility in raw material and energy costs, industry overcapacity, operational disruptions, and regulatory changes. The company's exposure to the cyclical nature of the chemical industry and its reliance on global trade flows also present potential headwinds.

However, LyondellBasell's diversified portfolio, strategic investments, and focus on operational excellence have enabled it to navigate these challenges and maintain its position as a leading player in the industry.

Conclusion

LyondellBasell Industries N.V. has demonstrated its resilience and ability to generate consistent financial performance in the face of a challenging market environment. The company's diversified portfolio, strategic investments, and focus on operational excellence have positioned it well to capitalize on emerging opportunities and deliver long-term value for its shareholders. With a strong balance sheet, disciplined capital allocation, and a clear strategic vision, LyondellBasell is poised to continue its trajectory as a leading global chemical company.

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