FocusWall Street analysts chop forecasts for US chemical firms

12 October 2011 22:04  [Source: ICIS news]

Chem forecasts cutBy Joseph Chang

NEW YORK (ICIS)--Wall Street analysts on Wednesday cut profit estimates for US chemical companies for the fourth quarter and the full-year 2012, amid slowing global economic growth, weaker demand and lower margins.

The latest round of profit forecast reductions come from US-based investment banks Well Fargo and JP Morgan.

“We are of the belief that third quarter earnings will hold up relatively well across chemicals – up more than 20% year on year – but see some downside risk to fourth quarter estimates as near-term industry dynamics (lower oil, higher ethane) and cautious purchasing behaviour are impacting olefin margins,” said Wells Fargo analyst Frank Mitsch in a research note.

The analyst lowered profit forecasts for Netherlands-based LyondellBasell and US-based companies Georgia Gulf and Westlake Chemical.

For LyondellBasell, Mitsch took down his third quarter 2011 earnings per share estimate by 5 cents to $1.30, and his fourth quarter estimate by 20 cents to 83 cents, leading to full year 2011 earnings per share of $4.85. He also cut his 2012 forecast by 25 cents to $4.85.

“Third-quarter margins held up fairly well until September, when both ethylene and refining margins took a dip,” he said.

The analyst reduced his fourth quarter earnings per share estimate on Georgia Gulf by 10 cents to 36 cents on weaker expected aromatics results. Mitsch expects the company to earn $2.10/share in 2011 and $2.25/share in 2012.

For Westlake, the analyst cut his fourth quarter estimate by 10 cents to 84 cents/share, leading to overall 2011 earnings per share of $4.40. For 2012, he also cut his forecast by 35 cents to $4.40.

The analyst said temporary market dislocations have compressed olefin margins, which could face pressure through the end of the year.

“Dow’s delayed [maintenance on] its St Charles, [Louisiana], ethylene cracker from the third quarter to early 2012 or possibly even 2013 has effectively raised ethane prices while putting pressure on ethylene,” said Mitsch.

That cracker has an ethylene capacity of 610,000 tonnes/year, according to ICIS.

JP Morgan analyst Jeffrey Zekauskas slashed his 2011, 2012 and 2013 earnings per share estimates on DuPont.

He took down 2011 estimates by 15 cents/share to $3.85, his 2012 forecast down by 85 cents to $3.90, and his 2013 down by 80 cents to $4.60.

The company will face earnings pressure from an inventory correction in the electronics sector as well as a weaker euro and Brazilian real, noted Zekauskas.

“Volume growth in the cyclical end markets, including construction, electronics/solar and automotive has likely slowed or turned negative,” said the analyst.

However, he noted continuing favourable fundamentals in titanium dioxide (TiO2) and agricultural chemicals.

On 11 October, Jefferies & Co analyst Laurence Alexander slashed his 2011 earnings per share estimate on LyondellBasell by 40 cents, to $4.70 on lower expected ethylene margins in the fourth quarter.

He expects the company’s earnings per share to decline to $3.70 in 2012, before rebounding to $5.60 by 2013.

The latest round of profit cuts by Wall Street analysts follows US-based investment bank Susquehanna International Group analyst Don Carson cutting his earnings per share estimates on Dow Chemical, LyondellBasell, Westlake and Olin on 29 September.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joseph Chang
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