BASF Signals Outlook Has Brightened, Bolstering Pricing Power
BASF SE (BAS), the world’s biggest chemical company, said its outlook has brightened over the last couple of months, helping it push through price increases needed to offset raw-material costs.
The “good pricing power” seen in the first three months of the year has extended into the second quarter and the company has seen no reason to be skeptical about profit margins, incoming Chief Executive Officer Kurt Bock said today on a call.
BASF today reported a 40 percent jump in first-quarter earnings, joining Dow Chemical Co. (DOW) and DuPont Co. in beating estimates as global chemical makers use their dominance to claw back spiraling input costs via pricing. This year should yield a “significant improvement” in sales and earnings, the Ludwigshafen, Germany-based company reiterated.
The results “confirm our expectations that BASF will be able transfer high raw-material prices increases to clients and shows their overall pricing power,” said Norbert Barth, an analyst at WestLB AG. Barth recommends investors buy the stock.
BASF fell 0.8 percent to 65.49 euros as of 11:54 a.m. in Frankfurt trading. Before today the stock had gained 11 percent this year, boosting the Ludwigshafen-based company’s market value to 61 billion euros. Dow Chemical, the biggest U.S. chemical maker, had increased 18 percent.
Earnings before interest, tax and one-time items in the first quarter increased to 2.73 billion euros ($3.9 billion) from 1.95 billion euros a year earlier, BASF said. Analysts in a Bloomberg survey predicted 2.6 billion euros.
Hambrecht Farewell
The earnings beat means Juergen Hambrecht, who steps down as CEO today, ends his eight-year tenure on a high note. Shareholders attending BASF’s annual meeting in Mannheim gave the 64-year-old a prolonged round of applause as he sat on stage before them, flanked by Bock, detailing earnings for the last time.
Hambrecht, credited with getting BASF through the crisis without firing workers, spent more than 18 billion euros on acquisitions to expand into less-cyclical specialty chemicals. BASF bought moisturizer-ingredient maker Cognis last year for 3.1 billion euros and dye-maker Ciba for 3.45 billion Swiss francs ($4 billion) in 2008.
Bock, 52 and currently chief financial officer, said earlier this week that he’s sticking to a target of expanding BASF by 2 percentage points faster than the overall chemical market. There’s “no reason to be more skeptical or cautious than at the end of February,” he told analysts.
Sales increased 25 percent to 19.36 billion euros, beating a 17.94 billion-euro estimate.
Plastics
Both the chemicals and the plastics division saw a 27 percent increase in first-quarter sales, with operating profit jumping 66 percent and 41 percent respectively. Chemical makers in the last couple of years have been showing more discipline in pricing and capacity, said Bock.
“The good result in chemicals is especially pleasing,” said Oliver Schwarz, an analyst at M.M. Warburg, who has a “buy” rating on the stock. “Plastics performed much better than expected.”
The chemical maker reiterated today that it would earn a high premium to its cost of capital, the measure it uses to help determine dividends. Bloomberg forecasts a dividend of 2.4 euros, up from 2.2 euros.
BASF’s outlook assumes no oil production in Libya this year. The company’s oil and gas unit, Wintershall, halted production at its eight oil fields in February as a result of political unrest there. As a result, non-compensable oil production taxes will decline by about 700 million euros.
Net income more than doubled to 2.41 billion euros, boosted by a gain of 887 million euros from the sale of a stake in potash maker K+S AG, a move that further marked the company’s move away from commodity markets.
BASF is also selling some fertilizer activities, including a nitrogen site in Antwerp, Belgium, and a share of a venture in France. While the company has had very positive feedback, it doesn’t expect to close that deal this year, Bock said today.
To contact the reporter on this story: Sheenagh Matthews at smatthews6@bloomberg.net
To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net
Rate this Page