German BASF cuts Q2, full year earnings outlook

HOUSTON (ICIS)–BASF expects its Q2 and full-year earnings to fall significantly below forecasts from analysts and the company’s own expectations, the German producer said late on Monday.

For all of 2019, pre-tax earnings before special items should be up to 30% below 2018, the company said. That compares with BASF’s earlier forecast of a slight year-on-year increase of 1-10%.

Sales in 2019 should fall slightly. Before, BASF thought they would rise by 1-5%.

Return on capital employed (ROCE) should fall considerably, the company said. Earlier BASF thought it would fall by 0.1-1.0 point.

For the second quarter, sales should reach €15.2bn, down 4% from €15.8bn reported in Q2 2018, BASF said.

Pre-tax earnings before special items should be €1.0bn, down 47% from €2.0bn in Q2 2018, the company said.

The decline was caused by considerably lower earnings in the company’s Materials, Chemicals and Agricultural Solutions segments.

Once special items are included, earnings before taxes (EBIT), will be €500m, down 71% from €1.9bn from the same time in 2018. BASF attributed the decline to one-time costs connected to its excellence programme and the impairment of a natural-gas-based investment in the US.

BASF is no longer pursuing that project.

By segment, Materials struggled with significantly lower prices for isocyanates.

Chemicals contended with scheduled cracker turnarounds in Port Arthur, Texas, US, and Antwerp, Belgium.

Margins for cracker derivatives were considerably lower than BASF’s forecasts, especially in North America.

Agricultural Solutions suffered from bad weather in North America and trade disputes between the US and China.

For BASF’s other segments, earnings should rise considerably for Industrial Solutions and slightly for Surface Technologies and Nutrition & Care.

BASF attributed the lower forecast to several reasons.

During the first half of the year, industrial production grew by 1.5%, much slower than expected.

Global automobile production fell by 6% during the first half of the year.

The decline was more pronounced in China, the world’s largest automotive market. There, the drop reached 13% during the first half of the year.

In North America, bad weather caused farmers to plant fewer crops than they did last year. Plantings during the first half of the year were far below historical averages.

The trade war between the US and China has not let up, despite BASF’s earlier assumptions.

The company doubts that a rapid detente will take place in the second half of the year.