Solvay Profit Forecast Tops Most Estimates as Prices Gain

Solvay SA (SOLB), the chemicals maker that bought Rhodia SA last year, forecast 2012 profit that surpassed most analysts’ estimates after reporting a smaller-than- estimated drop in first-quarter earnings as prices rose.

Earnings before interest, tax, depreciation and amortization, excluding one-time items, will be “similar” to last year’s 2.07 billion euros ($2.7 billion), Brussels-based Solvay said today in a statement. That compares with analysts’ projections of 1.86 billion euros, the average of 22 estimates compiled by Bloomberg. Last year’s figure is adjusted to assume a full year of Rhodia ownership, a purchase that was completed in September.

Incoming Chief Executive Officer Jean-Pierre Clamadieu, who set a goal last month for annual Ebitda of 3 billion euros by 2016, will rely mostly on better purchasing terms and Solvay’s pricing power in products such as soda ash, high-performance polymers and silica to help maintain earnings this year. Volumes declined 3 percent in the quarter, even as demand for vinyls and polyamide materials recovered from inventory cutbacks by customers in the prior quarter. Prices increased 4 percent.

“Better pricing conditions have more than compensated higher feedstock and energy costs,” Bernard Hanssens, an analyst at Banque Degroof SA in Brussels, said in a note before earnings were released.

Ebitda Declines

First-quarter Ebitda before reorganization costs and other one-time items declined 8.9 percent to 523 million euros. That beat the 444.9 million-euro average of 10 analysts’ estimates compiled by Bloomberg. Sales rose 3 percent to 3.24 billion euros on price increases.

Reorganization expenses linked to Solvay’s internal efficiency plan and the integration with Rhodia totaled 20 million euros in the first quarter. Last month, Solvay raised its target for savings to 400 million euros by 2016 and said it expects an additional 110 million euros worth of cuts by the end of this year. It didn’t give an update on incremental savings achieved in the first quarter.

Solvay released its earnings statement after the close of regular trading on Euronext Brussels, where the shares retreated 0.3 percent to 88.55 euros today. Solvay has gained 39 percent this year, the second-best performance on the 23-company Stoxx 600 Chemicals Index.

Net debt increased to 1.83 billion euros at the end of March from 1.76 billion euros on Dec. 31, mainly stemming from the payment of a 1.20 euro-a-share interim dividend in January.

First-quarter capital spending of 144 million euros and a 171 million-euro increase in industrial working capital exceeded cash generation from operations by 45 million euros. The cash consumption was offset by an additional 97 million-euro payment from Abbott Laboratories, which bought Solvay’s former drug division in February 2010.

Soda ash is a glass-making ingredient that is also used to modify the acidity of shampoos and other detergents. Polyamide materials are a kind of polymer that can be used in car interiors and synthetic textiles.

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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