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Can LyondellBasell Continue to Raise Net Profit Margin in 2Q16?

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LyondellBasell’s net profit margins

As of July 19, analysts are expecting LyondellBasell’s (LYB) net profit margins to be ~14.6% in 2Q16 as compared to 14.5% in 2Q15 and 14.1% in 1Q16. This implies an increase in margins of approximately eight basis points on a year-over-year (or YoY) basis and an increase in margins of 0.47 percentage points on a sequential basis.

LyondellBasell’s net profit margin has been above 14% since 1Q15 with the exception of 4Q15 where its net profit margin was 11.3%. Analysts are expecting LyondellBasell’s peers like PPG Industries (PPG), Dow Chemical (DOW), and Eastman Chemical (EMN) to post net profit margins of 12%, 8.5%, and 10.9%, respectively. Thus, LyondellBasell’s net profit margins are higher than its peers, as it commands a higher EBITDA (or earnings before interest, taxes, depreciation, and amortization) margin of 24.1%, which is relatively higher in comparison with its peers.

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LyondellBasell’s EPS

As of July 19, analysts are expecting LyondellBasell to report diluted earnings per share (or EPS) of $2.60 in 2Q16 as compared to $2.81 in 2Q15. This implies a decline of 7.5 % on a YoY basis. LyondellBasell has outperformed analyst estimates in the past five quarters. Its aggressive share repurchase program could push up the EPS in a bigger way. During 1Q16, LyondellBasell bought back 12.6 million shares. As of May 11, LyondellBasell’s total outstanding common shares stood at ~426 million. However, investors should note that the company’s additional maintenance cost of $40 million to $70 million will affect the EPS in the range of $0.1–$0.16 per share.

As of July 19, the Vanguard High Dividend Yield ETF (VYM) held 0.32% of its total holdings in LyondellBasell. In the next part, we’ll look into LyondellBasell’s capital expenditure, dividends, and share repurchase program.

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