DSM Profit Beats Estimates as CEO’s Nutrition Bet Pays Off

Royal DSM NV reported second-quarter profit that beat analyst estimates after Chief Executive Officer Feike Sijbesma got payback for $3.1 billion of acquisitions to expand in nutritional ingredients.

Earnings before interest, taxes, depreciation and amortization jumped 19 percent to 345 million euros ($457 million), the Heerlen, Netherlands-based company said today. Analysts estimated 333 million euros, on average. DSM climbed 4.6 percent to 55.1 euros as of 9:21 a.m. in Amsterdam trading.

DSM is midway through a 120 million-euro savings drive as it targets 1.4 billion euros in earnings in 2013. Sijbesma has set up a central task force to oversee and report back on a myriad of profit-boosting initiatives at struggling caprolactam and plastics businesses as well as newly acquired Omega 3 fatty acid operations. DSM is evaluating a sale of the caprolactam unit, two people with knowledge of the situation told Bloomberg last month.

“The economy and environment doesn’t really help a lot,” Chief Financial Officer Rolf-Dieter Schwalb said on a call. “The good thing is that the nutrition business is so strong now. It’s a much more stable, reliable and growing business than a materials business which is dependent on economic improvements to a certain extent.”

Internal Projects

While DSM is open to making smaller acquisitions, a larger purchase is not planned in the near term as the company focuses on internal growth and harnessing savings from absorbing acquired businesses, Sijbesma said on the call.

“For the rest of this year, we will continue to fully focus on operational performance,” the CEO said. “The early successes of our profit improvement initiatives leave us confident that this group-wide program is well on track.”

Sales increased 9 percent to 2.47 billion euros in the quarter.

Ebitda at the pharmaceutical and polymer intermediates units declined 18 percent and 13 percent respectively, while jumping 28 percent at the nutrition division. It reiterated its outlook today.

Sijbesma said today the company is continuing to explore the options for its merchant caprolactam business that supplies the raw materials for some synthetic fabrics and plastics. By contrast, DSM’s new plant producing succinic acid from fermentation processes rather than petrochemicals will easily be able to sell all of its output and there will be scope for expanding the plant.

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