BASF answers its doubters with estimate-beating quarterly profit

BASF answers its doubters with estimate-beating quarterly profit

by Sheenagh Matthews and Bruce Rule

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

Related: Bayer closes deal on Monsanto for $66 billion

Earnings before interest, tax and one-time items dropped 5.4% to 1.5 billion euros ($1.66 billion), the Ludwigshafen, Germany-based company said in a statement on Tuesday. Analysts had predicted 1.28 billion euros, it said, citing a poll by Vara Research.

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

BASF SE reported quarterly profit that beat analysts’ estimates. (Photo: Tashatuvango/Thinkstock)

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 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. The stock has gained 11% this year for a market value of 72 billion euros.

Sales in the quarter fell 20% 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 BASF.

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. A more comprehensive overview of the quarter will be given on October 27.

BASF confirmed its forecast for the full year, saying it still expects a “considerable” decline in sales, which it defines as 6% or higher and Ebit before special items to drop “slightly,” which represents a drop of as much as 10%.

“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.”

Related: Bayer, Monsanto say they will create ‘innovative engine’ for ag

To contact the reporters on this story: Sheenagh Matthews in Frankfurt at [email protected];Bruce Rule in New York at [email protected]

To contact the editors responsible for this story: Brendan Case at [email protected]

Andrew Noël

© 2016 Bloomberg L.P

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