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Clariant Leads Chemical Stocks Lower After Cutting 2011 Targets

Clariant Cuts Earnings, Sales Targets on Petering Demand
The logo of Clariant AG is seen at the company headquarters in Muttenz, Switzerland. The first two months of the second half have been marked by unfavorable exchange rates and “increasingly difficult economic conditions,” the company said. Photographer: Fabrice Coffrini/AFP/Getty Images

Clariant AG, which made its biggest-ever takeover in April, led chemical companies lower in European trading after cutting targets for sales and profitability this year.

Revenue will probably total 7 billion francs ($8.9 billion) to 7.2 billion Swiss francs, down from an earlier estimate of 7.8 billion francs to 8 billion francs, the Muttenz, Switzerland-based company said. Clariant dropped as much as 16 percent in Zurich, pulling BASF SE and other peers down.

“We’ve seen order sizes coming down and more insecurity in the supply chain” in markets like pigments and additives for coatings and plastics, Chief Executive Officer Hariolf Kottmann said on a call today. “Demand is slowing. This is not a development similar to 2008, 2009. We’re not expecting a complete collapse.”

Brazil, the U.S. and Europe are among the markets to feel the pinch, with customers scaling back on the size and frequency of orders, Kottmann said. With shorter lead times, additives for coatings and plastics are typically the first products to be affected by any deterioration in economies. The slowdown comes four months after Clariant’s takeover of catalyst maker Sued-Chemie AG for 2 billion euros.

The prospects of a wider downturn in chemical demand weighed on rivals, including BASF, which fell 3.7 percent to 45.4 euros in Frankfurt. Arkema SA dropped 8 percent and paintmaker Akzo Nobel NV dropped 5.2 percent.

Weakness Seeping In

“Clariant’s comments give a clear indication that weakness in European and U.S. economic growth is starting to have an impact on activity in the chemical sector,” Morgan Stanley analyst Peter Mackey wrote in a note. “We will not fall back into recession in coming quarters, and we therefore believe that activity in the chemical sector on the whole is more likely to resemble 2010 than 2009.”

Clariant lowered its margin target range to between 12.8 percent and 13.2 percent, from between 13.5 percent and 14.5 percent. The stock fell as much as 1.32 francs to 6.98 francs and traded at 7 francs as of 11:15 a.m. local time.

Kottmann, approaching his third anniversary as CEO, said he’s working on a companywide review as well as on the integration of Sued-Chemie and a program to improve efficiency. Clariant is relocating paper-chemical production to Spain and textile additives to Asia, with plans to open a head office for the division in Singapore next month.

Savings Target

Clariant is earmarking savings of more than 60 million francs this year. Kottmann reiterated a target for earnings before interest, taxes, depreciation and amortization before one-time items of 17 percent of sales in 2015, with sales of 10 billion francs.

The chemical industry is traditionally six months ahead of the wider economy and September could be a crucial month in gauging how markets are faring, according to Paul Hodges, chairman of consultancy firm International eChem.

“There appears to be no ‘seasonal surge’ in demand from Western retailers in advance of Thanksgiving and Christmas,” Hodges said by e-mail. “This is further confirmation perhaps that consumer demand is taking a real hit.”

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