LYB Financial Analysis

Analysis Date: 2/3/2025

Business Model

LyondellBasell operates through six operating segments: Olefins and Polyolefins-Americas (O&P-Americas), Olefins and Polyolefins-Europe, Asia and International (O&P-EAI), Intermediates and Derivatives (I&D), Advanced Polymer Solutions (APS), Refining, and Technology. Revenue is generated from the sales of petrochemicals, polymers, fuels, and related technologies and services across these segments.

Revenue Sources

• Olefins & Co-products (Ethylene, Propylene, Butadiene)
• Polyethylene (PE)
• Polypropylene (PP)
• Propylene Oxide & Derivatives (PO, PO Derivatives)
• Oxyfuels & Related Products (MTBE, ETBE)
• Intermediate Chemicals (Styrene Monomer, Acetyls)
• Compounding & Solutions (Polypropylene Compounds, Engineered Plastics, Masterbatches, Engineered Composites, Colors and Powders)
• Refined Products (Gasoline, Diesel, Jet Fuel)
• Technology Licensing and Catalysts

Income Statement Analysis

• Revenue decreased by 8% compared to previous quarter, reflecting seasonally slower demand and pricing pressure. (Con)
• Net income turned negative from positive in the previous quarter, primarily due to identified items. (Con)
• Net income excluding identified items and EBITDA excluding identified items decreased significantly, indicating weaker underlying business performance. (Con)

Balance Sheet Analysis

• Slight decrease in cash and liquid investments and total liquidity compared to the previous quarter. (Neutral)
• Strong liquidity position with $8.0 billion of available liquidity, including $3.4 billion in cash and cash equivalents. (Pro)
• No significant changes in debt availability. (Neutral)

Capital Allocation

LyondellBasell is committed to returning cash to shareholders through a growing dividend and share repurchases, targeting 70% of free cash flow over the long term. In 2024, dividends were increased by 7%, marking the 14th consecutive year of growth. Share repurchases were also executed, though lower than the previous year. Capital expenditure is being carefully prioritized, with a focus on high-return projects, including strategic investments in Circular and Low Carbon Solutions (CLCS) and the Value Enhancement Program (VEP). Some growth investments are being deferred due to the challenging operating environment. The company maintains a strong balance sheet to navigate market cycles and fund strategic initiatives.

Management Commentary

During the fourth quarter, our businesses delivered excellent cash performance amid difficult market conditions.

LYB remained sharply focused on executing its three-pillar strategy

Delivered 65% year-over-year volume growth in the company's Circular and Low Carbon Solutions (CLCS) business

Fourth quarter margins declined across most businesses as costs for NGL feedstocks and natural gas increased while product prices were restrained by seasonally slower demand.

European markets remained weak with higher feedstock cost and softer seasonal demand.

Significantly lower gasoline crack spreads reduced refining and oxyfuels margins

Overall Sentiment: Cautious. Management acknowledges the challenging market environment and weaker Q4 performance due to lower demand and margin compression but expresses confidence in the company's strategic direction, cash generation capabilities, and long-term growth prospects, particularly in CLCS. They emphasize disciplined capital allocation and shareholder returns.

Recommendation

Rating: Hold

Reason for Rating: Given the mixed Q4 2024 results, with strong cash flow but significant earnings decline due to market headwinds and asset write-downs, a Hold recommendation is appropriate. The company is navigating a challenging cyclical downturn and taking strategic actions to improve long-term performance, but near-term uncertainties remain.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/3/2025, 6:19:54 AM