Issue Date: November 2, 2009
European Firms Test The Bottom
Although third-quarter sales and earnings numbers don’t always support the claim, European chemical company executives contend that the worst is behind them in the economic crisis that has plagued their industry for the past 12 months.
The heads of Bayer and BASF, Europe’s two largest publicly traded chemical makers, both spoke with guarded optimism in announcing third-quarter earnings last week. Bayer Chairman Werner Wenning was particularly upbeat, stating that his company finally increased underlying earnings compared with the year-ago quarter.
“We are very pleased to have reversed the earnings trend despite the fact that many industries are still suffering from the economic crisis,” Wenning said. Bayer’s earnings before interest, taxes, depreciation, amortization, and special items were up 0.4%, although its net earnings were still down by just more than 10%.
Stock analysts were impressed by Bayer’s Material- Science division, which reported earnings just short of prior-year results. Ulrich Huwald, an analyst at the German investment firm M. M. Warburg, said the good performance at MaterialScience, Bayer’s chemical and polymer business, helped push third-quarter operating results above his expectations.
At BASF, Chairman Jürgen Hambrecht said business stabilized “at a low level” during the third quarter. “Overall, there is much to suggest that the worst is behind us,” he said. “After a steep plunge, we are now climbing gradually out of the trough. ”
BASF emphasized that its sales were up 2% over the second quarter, although down almost 19% from the third quarter a year ago. Hambrecht reported that the integration of Ciba, acquired in April, is ahead of schedule and that most of the expected 3,800 jobs cuts will be completed by the end of 2010.
Germany’s Merck, which makes both chemicals and pharmaceuticals, was the rare company to report a rise in sales. “Even in our chemical businesses, which were substantially impacted by the economic crisis, we see a clear trend toward recovery,” said Chairman Karl-Ludwig Kley. Notably, Merck’s liquid-crystals business saw quarterly sales of $309 million, well above the lows of the first quarter but still below the year-ago quarter.
AkzoNobel CEO Hans Wijers was grimmer in his economic assessment. “We have seen some signs of an improvement in emerging markets, but overall we don’t foresee a quick recovery,” he said. The Dutch firm’s quarterly sales were off by 10% versus the year-ago period, although its earnings rose a healthy 30%, thanks to cost reduction efforts.
Finnish water treatment chemicals maker Kemira also used efficiency improvement to raise its earnings in the third quarter. Sales, though, were down by 17%, and the company told investors that it expects its sales in the fourth quarter to remain behind the previous year’s.
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