Key Takeaways
Methanex Corp. (NASDAQ: MEOH) reported first-quarter earnings that fell short of analyst estimates, but said it expects a significant surge in second-quarter results driven by a sharp rise in global methanol prices.
"We are expecting to see significantly stronger earnings and cash flows in the second quarter compared with the first quarter," President and Chief Executive Officer Rich Sumner said on the company's earnings call.
The Vancouver-based company's results were affected by weaker year-over-year prices in the first quarter, even as sales volumes increased. The recent price escalation follows significant methanol supply disruptions from the Middle East, which has tightened the global market.
The company's outlook for the second quarter is dominated by the price spike. Based on April and May contract postings, Methanex estimates its average realized price will be between $500 and $525 per tonne, a roughly 45 percent increase from the first-quarter average. This is a direct result of supply disruptions in the Middle East, which normally supplies about 20 million tonnes of methanol annually to global markets. "We do not think it gets fixed in short order," Sumner said of the disruption.
Buoyed by the expected cash flow increase, Methanex plans to accelerate its debt reduction. The company, which repaid $60 million of its term loan in the first quarter, now expects to repay the remaining $290 million in the second quarter.
While the global price environment provides a strong tailwind, the company faces operational headwinds at some of its sites. It is in "challenging" negotiations for a new gas contract for its Trinidad facility, with a potential plant idling under consideration. In New Zealand, the potential cessation of production from the Maui gas field by year-end could force Methanex to shut down its plant there.
The guidance for a significant earnings increase signals management's confidence that the higher pricing environment will more than offset any localized operational issues. Investors will watch the second-quarter results closely for confirmation of the debt repayment and the flow-through of higher methanol prices to the bottom line.
This article is for informational purposes only and does not constitute investment advice.
