The MDAX company sees the operating result in the second quarter below expectations. The group lowered the forecast for the year significantly.
For 2023, LANXESS is only assuming adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of EUR 600 to 650 million if demand does not pick up. So far, the Cologne group had made 850 to 950 million euros. In the previous year, the result had amounted to 930 million euros.
For the second quarter, a result at the level of the first quarter of 189 million euros had been targeted. However, LANXESS is now assuming only around EUR 100 million. This would fall short of average market expectations.
According to the group, a generally very weak demand and ongoing destocking by customers could already be observed in the first quarter. This continued in the second quarter. In particular, the weak demand from the construction and electronics industries, as well as other stable consumer products, are causing lower capacity utilization of the plants. There is no sign of a recovery in June.
“The revival in demand that we expected for the second half of the year is not yet foreseeable – neither in China nor in other markets that are important to us,” said CEO Matthias Zachert according to the announcement.
Warburg Research suspends valuation of LANXESS
The analysis company Warburg Research has classified LANXESS according to the “violent profit warning” Initially suspended. In his first reaction on Tuesday morning, analyst Oliver Schwarz announced a revision of his estimates. Other chemical stocks are also likely to be affected. The annual targets in the industry depend on a significantly stronger second half of the year, Schwarz explained.
LANXESS stock very weak
A profit warning from LANXESS on Tuesday put another damper on the mood in the European chemical industry. The shares of the specialty chemicals group fell in double-digit percentages via XETRA and were therefore particularly strong, dragging numerous other industry stocks down with them. The generally very weak demand at the beginning of the year and ongoing customer destocking are not only making business development more difficult for LANXESS.
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JPMorgan analyst Chetan Udeshi also found this in a recent analysis of demand trends in cyclical end markets. Over the past four quarters, he writes, chemical companies in the European Union have seen large-scale destocking, in addition to falling demand in some key end markets.
At times, LANXESS shares fell by 15.13 percent to EUR 26.75 via XETRA, which brought up the rear in the MDAX. In some places, they even plummeted by a little more than 18 percent and reached their lowest level since March 2020 – a record slump for LANXESS in a single trading day.
Evonik follows at a discount of 3.19 percent to EUR 16.86, as does WACKER CHEMIE, down 4.44 percent to EUR 116.35.
The previous evening, LANXESS had made more negative statements about the outlook for 2023 against the background of a second quarter that was weaker than expected. According to analysts, the reduced full-year target for operating profit (Ebitda) now means a correction of around 30 percent in the consensus, the average analyst estimate. “While second-quarter weakness was anticipated by investors after various warnings from other companies that inventory reductions were taking longer than expected, the magnitude of today’s target reduction comes as quite a surprise,” commented Goldman analyst Georgina Fraser. The US investment bank Goldman Sachs has left its rating for LANXESS at “Buy” with a target price of EUR 49.
A trader made a similar statement: The capping of the annual targets follows the latest warnings in the sector, for example from Croda and Victrex, and therefore does not come as a great surprise. “Nevertheless, LANXESS’s second quarter is a big disappointment,” he added, referring to the short-term negative impact on sentiment for the entire sector.
UBS expert Andrew Stott also recalled Covestro’s announcement of weaker than expected volume development since the first quarter and continued inventory reduction in the construction and furniture end markets. An overall slower business recovery is also an issue with a view to China.
BASF and Brenntag in DAX weak after LANXESS warning
In the DAX, the shares of BASF collected via XETRA with minus 2.67 percent to 42.89 euros and the papers of the chemicals dealer Brenntag lost 0.75 percent to 71.60 euros.
“The focus of investors should now be on the two chemical companies Covestro and BASF, whether they are affected by the same problems or whether weaker demand is at least less important here,” said capital market strategist Jürgen Molnar from broker RoboMarkets.
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