Sabic Misses Estimates as Second-Quarter Profit Declines 35%

Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, posted a 35 percent decline in second-quarter profit on lower product pricing and higher raw materials costs, missing analysts’ estimates.

Net income fell to 5.3 billion riyals ($1.4 billion) from 8.1 billion riyals a year earlier, the Riyadh-based company known as Sabic said in a statement today. The average estimate of seven analysts was for a profit of 6.84 billion riyals, according to data compiled by Bloomberg.

“The continuous slowdown in global economic growth, especially in Europe, China and North America, which negatively impacted the prices of petrochemical products,” was the major reason for the earnings decline, Sabic said.

Slower economic growth has reduced demand for products from Sabic, which is building a $3.4 billion petrochemicals project in the kingdom in a joint venture with Exxon Mobil Corp. Saudi Arabian Fertilizer Co. and Yanbu National Petrochemical Co., both units of Sabic, posted quarterly profits that missed analysts’ estimates, while Saudi Kayan Petrochemical Co. said its loss widened.

The company’s shares gained 0.3 percent to 86.5 riyals at 2:35 p.m. in Riyadh. The stock has dropped 10 percent this year compared with a 2.8 percent gain for the benchmark Tadawul All Share Index.

Cash Dividend

Sabic said it will distribute a cash dividend of 2 riyals a share for the first half. The planned dividend payment is also supporting Sabic’s share price, said Turki Fadaak, head of research at Riyadh-based Albilad.

The European economic situation “was the most pressing,” Chief Executive Officer Mohamed Al-Mady said during a press conference today in Riyadh. European petrochemical prices fell the most, while demand growth in Saudi Arabia remained “at healthy rates,” he said.

The International Monetary Fund cut its 2013 global growth forecast as Europe’s debt crisis prolongs Spain’s recession and slows expansion in emerging markets from China to India. Growth worldwide will be 3.9 percent next year, less than the 4.1 percent estimate in April, the fund predicted on July 16 in an update of its World Economic Outlook.

Sales Decline

Second-quarter sales fell 5 percent from a year earlier to 46.5 billion riyals, Sabic Chief Financial Officer Mutlaq Al Morished said at the press conference. He also said that Sabic didn’t “at the moment” see a need for a Sukuk sale.

The economy of the world’s largest oil producer is forecast to expand 4.8 percent this year, the second-fastest pace in the Gulf Cooperation Council after Qatar, according to an April survey of economists compiled by Bloomberg. Petrochemicals represented 37 percent of the kingdom’s total non-oil exports in May, according to the Central Department of Statistics and Information in Riyadh.

“The reasons for the year-on-year decline are mainly lower petrochemical prices as well as a decrease in Safco profitability due to a plant shutdown,” Faisal Potrik, an analyst at Riyad Capital, said before the results were announced. “Safco contributes significantly to Sabic’s profitability as it has high margins.”

Plant Maintenance

Safco posted a 1 percent decline in second-quarter profit to 784 million riyals, the company said July 14.

Second-quarter profit “witnessed some of the scheduled plant maintenance activities for some of our plants, especially in fertilizers, metals and some petrochemical plants,” Sabic said in today’s statement.

Sabic, which makes fertilizers, plastics and steel, has added output capacity through units and joint ventures. The company plans to begin producing the crop nutrient urea in the third quarter of 2014 at a 2 billion-riyal facility being built by its fertilizer unit. It forecast steel-production capacity will grow 50 percent this year to 6 million metric tons after completing work at a plant in Jubail.

Clients have reduced inventories of petrochemical products, Sabic said today. “In the third quarter, we may see the return of these customers to increase the volume of their inventories,” Sabic said. “Some high-cost producers will decrease their production levels, which helps to return back the balance in the market.”