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Must-know: AQR Capital Management’s 1Q14 positions

Part 4
Must-know: AQR Capital Management’s 1Q14 positions (Part 4 of 6)

Must-know: Why AQR Capital exits position in LyondellBasell

AQR Capital and LyondellBasell

AQR Capital opened new positions in the quarter—the notable ones being Riverbed Technology Inc. (RVBD) and Nordion Inc. (NDZ). It sold off positions in LyondellBasell Industries (LYB), Marvell Technology Group (MRVL), and Vodafone (VOD).

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The fund exited a position in LyondellBasell Industries (LYB) which accounted for 0.86% of its 4Q13 portfolio.

Netherlands-based LyondellBasell, which came out of Chapter 11 bankruptcy in 2010, is one of the world’s top five independent chemical companies based on revenues. It’s a leading worldwide producer of olefins, including ethylene and propylene. It also produces polyolefins, including polyethylene (or PE), and is the world’s largest producer of polypropylene (or PP) and PP compounds.

LyondellBasell has five segments. Its O&P—Americas segment produces and markets olefins, polyolefins, aromatics, specialty products, and ethylene co-products, in addition to specialty products including Catalloy and Plexar resins. The O&P—EAI (Europe, Asia, International) segment produces and markets olefins (ethylene and ethylene co-products) and polyolefins. The Intermediates and Derivatives (I&D) segment produces and markets propylene oxide and its co-products and derivatives, acetyls, including methanol, ethanol, ethylene oxide and its derivatives, and oxygenated fuels, or oxyfuels. The Refining segment refines heavy, high-sulfur crude oil and other crude oils of varied types and sources available on the U.S. Gulf Coast. Its Technology segment develops and licenses chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts.

First quarter results miss estimates

For 1Q14, the company missed on earnings and revenue estimates. The management noted that, “The first quarter results were good despite headwinds from maintenance, weather-related raw material cost volatility, and shipping delays.” 1Q14 EBITDA (earnings before interest, taxes, depreciation, and amortization) declined sequentially for O&P–Americas segment as results were negatively impacted by olefin and polyethylene outages related to cold weather and maintenance activity as well as ethylene purchases and inventory build in preparation for the La Porte site turnaround. Compared to the prior period, the olefins margin decreased slightly in part due to higher natural gas costs and the resulting increase in natural gas liquid (or NGL) feedstock prices. LyondellBasell reiterated that market conditions remain weak in Europe despite an EBITDA increase for the O&P–EAI segment as a result of higher margins and seasonal recovery in volumes.

Revenues increased by $466 million in 1Q14 relative to 1Q13 due to higher sales volumes, which contributed 7% to the increase. The company said, “Volumes increased primarily due to higher crude processing rates at our Houston refinery and the December, 2013, restart of our methanol plant in Channelview, Texas. These volume improvements were offset in part by lower olefins sales volumes in our O&P–Americas segment and lower polypropylene sales volumes in our O&P–EAI segment.”

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Receives greenhouse gas permit for the Corpus Christi project

LyondellBasell recently said it received a greenhouse gas permit for the Corpus Christi project. This is a key permit required in the company’s multi-plant ethylene expansion program which, when fully operational, is expected to increase annual ethylene capacity by an estimated 1.85 billion pounds, for a total estimated capacity of 11.8 billion pounds in North America, the company said in a statement. The ethylene expansion program began in 2013 and represents a total investment of approximately $1.3 billion in the company’s Channelview, La Porte, and Corpus Christi, Texas plants which benefit from shale gas production. According to the management, “These projects, in addition to the recent restart of an idle methanol unit at our Channelview plant and a butadiene expansion at our Wesseling, Germany plant, can potentially add approximately $1.1 billion to our EBITDA, based on 2013 margins.”

Boosts dividends and buyback program

In April, the company declared an interim dividend of $0.70 per share, representing an increase of 17% to 1Q14 interim dividend. Shareholders also authorized the company to repurchase up to an additional 10% of its outstanding shares over the following 18 months. The company said the moves are “reflective of our outlook, capital growth program, strong free cash flow profile and our commitment to returning cash directly to our shareholders via share repurchases and dividends.”

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