Solvay Third-Quarter Earnings Drop 13% as Guar Gum Hurts Margins

Solvay SA, planning to put its polyvinyl chloride assets in a joint venture with Ineos Group Holdings SA, reported third-quarter profit fell as declining guar prices squeezed margins of its gelling agents business.

Earnings before interest, tax, depreciation and amortization fell 13 percent to 439 million euros ($607 million) from a restated 503 million euros a year earlier, the Brussels-based company said today in a statement. Adding back the vinyls unit now presented as a discontinued business, Ebitda was 478 million euros including a 22 million-euro reversal of provisions. Analysts had projected Ebitda of 463 million euros, the average of eight estimates compiled by Bloomberg.

Solvay said the drop in guar gum prices will continue to affect margins for two more quarters as its Novecare unit keeps selling gelling agents and ingredients for conditioners from raw materials bought at higher prices. It also forecast a gradual recovery in demand as volumes stopped falling in the past quarter, which would mitigate seasonal weakness in the fourth quarter, and said it would spend less than the 900 million euros earmarked for capital spending this year.

“The comparison is a bit messy,” Filip De Pauw, an analyst at ING Groep NV in Brussels, wrote today in an investor note. “Results and outlook seem broadly in line with expectations as consensus already anticipated a 2 percent decline.”

Profit Outlook

Solvay fell as much as 3.7 percent on Euronext Brussels and traded 2.60 euros lower at 114.70 euros by 9:15 a.m. The shares had advanced 7.3 percent this year through yesterday, compared with a 7.7 percent gain for the Stoxx 600 Chemicals Index in the same period.

Adapting its profit outlook for the deconsolidation of the vinyls business, pending European antitrust approval for the joint venture, Solvay said the forecast for full-year Ebitda of about 1.65 billion euros is “broadly in line” with its former prediction.

“This new guidance is a slight downward revision, which should not come as a major surprise though,” said Wim Hoste, an analyst at KBC Securities in Brussels. “We understood there was an underlying base of 1.706 billion euros in 2012.”

Net debt declined by 6.2 percent to 1.48 billion euros and Solvay’s net pension liability shrank 3.6 percent to 2.62 billion euros from the previous quarter.

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