FRANKFURT (Reuters) - German chemicals maker Covestro said core profit could halve this year as rivals increase production and demand from customers such as the Asian car industry slows.
Shares in the maker of chemicals for heat insulation foams and transparent polycarbonate plastics fell as much as 5 percent in early Monday trading.
The former Bayer subsidiary said earnings before interest, taxes, depreciation and amortisation (EBITDA) were likely to come in between 1.5 billion euros (£1.3 billion) and 2.0 billion euros this year, down from 3.2 billion in 2018.
“The last two years were marked by unusually high margins. For 2019, we expect demand to continue to grow, however margins will drop significantly due to competitive pressure,” said finance chief Thomas Toepfer.
Fourth-quarter EBITDA plunged by two-thirds to 293 million euros, less than the 314 million expected on average by analysts in a Reuters poll.
Covestro said the economic environment was challenging and demand from the Asian car industry had shrunk during the last quarter of 2018.
Baader Bank analyst Markus Mayer said the results confirmed his view that automotive customers and users of polyurethane foams were continuing to run down stocks.
“The order book visibility remains short,” he said.
Covestro shares were down 3.8 percent at 49.64 euros at 0950 GMT, among the worst performers on Germany’s blue-chip DAX index which was up 0.4 percent.
Rapid earnings growth over the last two years was driven by supply shortages mainly in chemicals that go into foams, for uses such as heat insulation and mattresses, because suppliers had underestimated the pace of demand growth.
However, companies including BASF, China’s Wanhua Chemical, as well as Sadara, a joint venture between DowDuPont and Saudi Aramco, are ramping up production, Covestro said in presentation slides.
Despite lower earnings, Covestro is boosting investment to prevent production bottlenecks in future upswings, taking up the challenge posed by rivals’ growth plans.
Still, the company said it would also ask shareholders to approve a new round of share buybacks, though it would decide later whether to go ahead with a transaction.
Covestro last year returned 1.7 billion euros to shareholders via buybacks and dividends. It will seek approval at the next annual meeting to buy back another 10 percent of the capital stock, it said.
Additional reporting by Patricia Weiss; Editing by Richard Borsuk and Mark Potter