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Can LyondellBasell’s Earnings Beat Analysts’ Estimates in 4Q17?

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LyondellBasell’s 4Q17 earnings

LyondellBasell (LYB) is expected to report adjusted earnings per share of $2.55 in 4Q17, an increase of 17.0% on a year-over-year basis. In 4Q16, LYB reported adjusted earnings per share of $2.18. In 2017, LYB managed to beat analysts’ estimate once and underperformed twice. If LYB can beat the analysts’ estimate, it could push the stock price to an all-time high.

The projected adjusted earnings per share are expected to be driven by a reduction in the cost of goods sold (or COGS) and a reduction in selling, general, and administrative (or SG&A) expenses as a percentage of sales. Further, LYB’s share repurchases could also help in improving LYB’s adjusted earnings per share.

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LYB’s COGS in 4Q17 is expected to be approximately $7.0 billion, which is 79.8% of the expected sales. In 4Q16, LYB reported COGS of $6.4 billion, which was 83.2% of the sales. This estimate implies an improvement of 340 basis points on a year-over-year basis. Similarly, LYB’s SG&A expenses in 4Q17 are expected to be at 2.4% of the expected sales. However, in 4Q16, expenses were 3.3% of the sales, a decrease of 90 basis points on a year-over-year basis.

Share repurchases

LyondellBasell has been actively engaged in share repurchases. In 3Q17, LYB bought back three million shares. In May 2017, LYB’s board authorized buybacks of 40 million outstanding shares until November 2018. At the end of 3Q17, LYB had approximately 395.90 million common shares outstanding. LYB will likely continue its share repurchases, and the number of outstanding shares at the end of 4Q17 is projected to be at ~392.8 million.

Investors can indirectly hold LyondellBasell by investing in the Vanguard Materials ETF (VAW), which invests 4.1% of its portfolio in LyondellBasell. The fund also provides exposure to Sherwin-Williams (SHW), PPG Industries (PPG), and Celanese (CE), which have weights of 3.6%, 3.1%, and 1.5%, respectively, as of January 25, 2018.

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