Umicore Shares Drop as Investments, Metal Prices Will Cut Profit

Umicore SA (UMI), the world’s largest precious-metals recycler, fell the most in six months in Brussels trading after forecasting a surprise decline in operating profit as capacity expansions drive depreciation charges and lower metal prices affect recycling margins.

Umicore dropped as much as 8.3 percent on Euronext Brussels, the most since Oct. 4, and traded 2.16 euros lower at 39.65 euros by 1 p.m. local time. The shares have gained 24 percent this year, outpacing the 13 percent advance for the Stoxx Europe 600 Chemicals Index in the same period.

Earnings before interest, tax and special items will decrease this year to 390 million euros ($514 million), plus or minus 20 million euros, from 416.1 million euros in 2011, the Brussels-based company said today in a statement. Before today, analysts projected an increase to 422 million euros, according to the average of 10 estimates compiled by Bloomberg.

“Guidance is below our and consensus expectations,” Wouter Vanderhaeghen, an analyst at KBC Securities NV in Brussels, wrote today in a note to clients, as he cut his recommendation for the shares to “hold.” “The short-term margin challenges make it hard to find a short-term trigger and valuation is not particularly cheap.”

Umicore faces a contraction in recycling margins as prices for metals including cobalt, nickel, selenium and tellurium declined and supplies of spent catalysts and residues containing zinc and germanium dwindled. Depreciation charges are rising after Umicore increased capital spending by 24 percent last year to accommodate capacity expansions for automotive catalysts and rechargeable-battery materials.

Premiums Decline

The Belgian maker of a third of all auto-catalysts also said the premiums at which it can sell products including nickel salts, germanium substrates and lithium-ion cathodes fell as competition increased amid an economic slowdown.

First-quarter sales increased 11 percent, a slowdown from a 16 percent advance in the second half of last year. Revenue growth in the recycling business, which accounted for 58 percent of operating profit excluding corporate costs last year, slowed to 8 percent from 26 percent and was affected by an earlier- than-usual maintenance shutdown of the smelting facility in Hoboken, Belgium.

Sales in the catalysis division jumped 18 percent and were driven mainly by passing on higher raw-material prices to clients, while revenue from energy materials climbed 12 percent as sales of lithium-ion cathodes for rechargeable batteries almost doubled.

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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