BASF Answers Skeptics With Estimate-Beating Quarterly Profit

  • Profit declines less than expected following asset sale
  • Chemical maker keeps full-year forecast in preliminary report

BASF SE reported quarterly profit that beat analysts’ estimates as the world’s largest chemical maker seeks to alleviate fears its 151-year-old conglomerate business model is finally running out of steam.

Earnings before interest, tax and one-time items dropped 5.4 percent to 1.5 billion euros ($1.66 billion), the Ludwigshafen, Germany-based company said in a statement late Tuesday. Analysts had predicted 1.28 billion euros, it said, citing a poll by Vara Research. The result was 7 percent above Citigroup analyst Andrew Benson’s prediction.

“Analysts have been too conservative,” Christian Faitz, an analyst at Kepler Cheuvreux, said by telephone.

Chief Executive Officer Kurt Bock has focused on trimming BASF’s sprawling portfolio and cutting costs, choosing to sit on the sidelines of a merger frenzy that has gripped the chemical industry this year. U.S. rivals Dow Chemical Co. and DuPont Co. are combining and Germany’s Bayer AG is in the midst of a deal to acquire Monsanto Co. BASF said its Agricultural Solutions division, along with catalysts and additives, generated profit “considerably higher” than the prior year.

The shares gained as much as 2.1 percent to 79.99 euros in Frankfurt trading and were up 1.8 percent at 79.90 euros as of 9:06 a.m. local time. The stock has gained 13 percent this year for a market value of 73 billion euros.

“The third quarter for Brazil is a focus quarter for agricultural chemicals because of its crop season and there has been demand,” Faitz said. The analyst recommends investors buy BASF shares.

Earnings Crutch

Sales in the quarter fell 20 percent to 14 billion euros, following the sale of BASF’s natural gas trading activities. That compares to an estimate of 13.9 billion euros, according to Vara Research figures provided by BASF. Vara is a provider of investor-relations services, based in Frankfurt.

Just as BASF’s oil and gas division propped up profit when crude prices were higher, now it’s the turn of downstream operations supplying chemicals closer to consumers to lend support to the group. Earnings at its specialty chemicals divisions, which make cosmetic ingredients, catalysts and light-weight plastics for cars, were “considerably higher” than a year earlier, BASF said without giving figures.

‘Positive Indicator’

Investors will have to wait until Oct. 27 for a more comprehensive overview of the quarter, said BASF, which pre-released just sales and profit figures amid indications they had exceeded consensus estimates.

“We see this pre-announcement as a positive indicator for the results across the industrial chemicals sector,” Benson said in a note. “Our thesis remains that the core commodity businesses are at trough.”

BASF confirmed its forecast for the full year, saying it still expects a “considerable” decline in sales, which it defines as 6 percent or higher and Ebit before special items to drop “slightly,” which represents a drop of as much as 10 percent. Saudi Basic Industries Corp. is usually among the first chemical companies to report earnings, yet the state-owned company doesn’t have the breadth of downstream operations that BASF has. Dow Chemical Co. is also scheduled to release third-quarter earnings on Oct. 27.

“The third-quarter results today were better than expected,” Jeremy Redenius, an analyst at Bernstein, said in a note. “However, we still worry about BASF’s growth prospects in the medium term, and consensus expectation of growth acceleration is optimistic in our view. BASF’s European margins are also at risk, due to the industry overcapacity.”

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