Evonik’s Freshman Year on Stock Market Marred by Profit DropAndrew Noel
Evonik Industries AG cut its outlook for sales and profit in 2013 and said it will accelerate cost cuts after a disappointing recovery in some markets.
The German maker of tire additives and ingredients for cosmetics and animal feed now sees sales at last year’s level and a decline in earnings, reducing a forecast for growth in both metrics, it said.
“Let me not beat about the bush, the new chapter in our company’s history as a listed company got off to a more difficult start than we expected in terms of the share price and earnings,” Chief Executive Officer Klaus Engel said on a conference call today.
Evonik said it held off from adjusting guidance earlier in the year as it thought some markets would bounce back, as in the past. The CEO earmarked 6 billion euros ($7.9 billion) for investment through 2016, yet opted to cut capital expenditure plans for this year by 20 percent to 1.2 billion euros.
Second-quarter earnings before interest, taxes, depreciation and amortization fell by 23 percent to 489 million euros, compared with an average estimate from analysts of 484 million euros.
Evonik this year scaled back plans for an initial public offering, listing 14 percent of its shares largely through a private placement in April. So far, the stock has declined 19 percent since its debut in Frankfurt.
A slowdown in the automotive and car industries weighed on prices at butadiene-based operations making compounds for the tire industry, and animal-feed additives.
“Don’t think we are trying to make excuses here,” Chief Financial Officer Wolfgang Colberg said on the call. “Two totally uncorrelated markets, feed additives and butadiene, weakened simultaneously. This is unprecedented in terms of both scope and timing. It has some characteristics of a perfect storm and is highly unlikely.”
Evonik’s earnings and outlook resonate with those of BASF SE, the world’s biggest chemical company, which posted profit that missed analyst estimates and said meeting annual targets looks more difficult than at the start of the year amid price pressure.
Evonik’s response has been to establish a taskforce to hone in on cost-management measures that can be taken in the near-term. Savings of about 40 million euros may be possible, Colberg said.
After years of disposals, including the divestment of most of its stake in a real-estate business this month, Engel is trying to take the company into new higher-margin areas and expand its nutrition and health portfolio, where demand held steady in the first half.
Evonik is also among the companies considering a bid for nicotine-patch maker LTS Lohmann Therapie-Systeme AG, valued at more than 1 billion euros, according to people with knowledge of the matter. It’s holding talks with Morgan Stanley, which is preparing the sale process for the German maker of plasters that deliver drugs through the skin, said the people.
The company is seeking a 1.75 billion-euro credit line to replace existing facilities.
Sales at the consumer, health and nutrition business reached 2.1 billion euros in the first half, with an adjusted earnings before interest, taxes, depreciation and amortization margin of 23.7 percent, boosted by demand for products such as powdered gels that can absorb liquid, used in baby-care products.
“We see Evonik’s portfolio of assets as more resilient than peers given their wide spread,” said Martin Evans, an analyst at JP Morgan. “We continue to believe Evonik has long-term potential.”
The stock was little changed at 26.05 euros in Frankfurt today as of 10:32 a.m., valuing the company at 12.1 billion euros.