BASF's Profit Outlook Weighed Down by Gloomy European ViewBy
Shares drop amid disappointment about prospects for 2017
CEO says any acquisitions would have to be stratefic fit
BASF SE Chief Executive Officer Kurt Bock said prospects for the European economy are gloomy, weighing on the German chemical maker’s outlook for profit growth this year as it sits out a wave of global deals set to transform the industry.
The shares fell as much as 3.6 percent, the most in almost seven months, and were trading down 2.9 percent to 87.32 euros as of 11:35 a.m. in Frankfurt, making it the biggest decliner on Germany’s benchmark DAX index.
The producer of plastics, additives and catalysts said it’s expecting a “considerable slowdown” in economic growth in the European Union and slight earnings growth this year in the range of 1 percent to 10 percent, according to a statement Friday. Earnings before interest and taxes before special items increased 15 percent to 1.18 billion euros ($1.25 billion) in 2016.
The market was “too bullish” on BASF’s earnings perspective, Baader Bank AG analyst Markus Mayer wrote in a note. Analysts surveyed by Bloomberg expected an average increase in Ebit before special items of about 15 percent for 2017.
BASF joins Dow Chemical Co. in reporting improved earnings from chemicals and additives used in industries such as construction and car parts. That helped offset the impact of last year’s fatal accident at its flagship Ludwigshafen site that continues to disrupt production of some products used in polyurethanes.
The Ludwigshafen, Germany-based manufacturer is also among companies sitting on the sidelines of mega-deals in the agricultural chemicals and seeds business and has said it may look at assets that could come up for sale. The list of businesses that may be shed is getting longer as deals including Dow Chemical Co.’s merger with DuPont Co., Syngenta AG’s takeover by China National Chemical Corp., and Bayer AG’s proposed acquisition of Monsanto Co., are put before antitrust regulators for approval.
BASF may look at disposals, although they are at a “very early stage,” Bock said in an interview with Bloomberg TV. It has no plans to spin off its Wintershall energy unit.
At a subsequent press conference, Bock said any acquisitions need to be a strategic fit and add technology and market access.
Bock has so far proved to be more cost-cutter than acquirer, and has set a goal to boost earnings by 1 billion euros in 2018 via efficiency gains. The company achieved 350 million euros in cost cuts last year, more than the goal of 300 million euros.
As peers pursue large-scale deals, Bock has pursued a strategy to increase earnings, margins and the share price, which he has said is as valid as doing M&A transactions. His largest acquisition was coating additives maker Chemetall, acquired from Albemarle Corp. for $3.2 billion last year.
BASF increased its dividend to 3 euros, the seventh straight annual increase, generating a yield of 3.4 percent based on the share price at the end of 2016.