BASF Cuts 2018 Earnings Outlook

10.12.2018 -

Just five weeks after presenting third-quarter financial results and forecasting a slight decline in EBIT before special items for full year 2018 and a little over two weeks after new CEO Martin Brudermüller outlined his forward strategy, BASF has revised its near-term earnings outlook sharply downward.

Based on data for November, BASF said it now expects a “considerable decrease” of 15-20% in EBIT before special items against last year’s €7.6 billion. This contrasts with earlier expectations of a “slight decline” of 10%. The group said earlier that EBIT after special items could see a “considerable “decline. The sales forecast remains unchanged at a gain of 5%.

Like compatriot plastics producer Covestro, which also has revised its 2018 earnings outlook downward, BASF blames the worsened prospects in major part on plummeting producer selling prices for polyurethane feedstocks TDI and MDI.

Buoyant notations and strong margins for the two isocyanates padded earnings figures considerably in 2017 and for much of 2018, so that the current downswing is noticeably impacting the year-on-year comparison.

Adding to the misery, from this year’s third quarter and well into the fourth quarter is the weakness of the global automotive sector, where new car sales are down, along with the extremely low water levels in the Rhine river in the wake of the summer drought.

At BASF, logistics problems are expected to lead to an earnings drop of up to €200 million in the fourth quarter, higher than previously forecast; however, the group said the impact in the third quarter could be limited to €50 million.

In automotive, even demand from customers in China has “slowed significantly,” BASF said, remarking that the trade conflict between the US and China has also contributed to the slowdown. The Ludwigshafen group’s cracker margins have also deteriorated.

The capital markets have been following developments in the chemicals sector closely, and the increasingly negative reports have hurt chemical shares. BASF and Covestro have been jockeying for positions on the bottom rungs of the DAX 30 index of blue chip stocks. Bayer’s share has also deteriorated on negative Monsanto news.

BASF said in talks on construction chemicals

Meanwhile, unconfirmed reports of talks between BASF and private equity investor CVC Capital Partners about a deal in construction chemicals are making the rounds. News agency Bloomberg said negotiations focus on creating a grouts and sealants supplier valued at as much as €6 billion.

Analysts have pegged value the BASF construction chemicals unit as being worth about €3 billion, with France’s ParexGroup – owned by CVC funds – said to be worth about 2.5 billion.

In October, Brudermüller revealed that BASF is seeking a buyer or joint venture partner for its construction chemicals business. According to Bloomberg, CVC is working with investment bank Lazard on a potential sale of Parex.