October 28, 2019 / 3:58 PM / 21 days ago

Chemicals maker Covestro narrows 2019 outlook in tough markets

(Reuters) - German chemicals maker Covestro AG (1COV.DE) narrowed its full-year forecast on Monday amid a challenging economic environment, particularly in the automotive sector, as it reported mixed third-quarter results.

The results and revised outlook come after the German chemical industry association cut its 2019 sector forecast for the third time this year, citing flagging customer demand and continued trade conflicts.

The sagging demand was particularly visible in the automotive industry, the association said. Covestro’s automotive and transportation business accounts for about 20% of the group’s sales.

Covestro CFO Thomas Toepfer said he expected the challenging environment to continue in 2020.

Baader Helvea analysts said the market was overly positive on Covestro’s fourth quarter and 2020, while the stock’s price rally since August 2019 might give rise to profit taking.

Covestro shares fell about 3% at 1500 GMT, underperforming Germany's blue-chip DAX index .GDAXI. They have risen about 5% so far this year, lagging the sector and the broader market.

The maker of foam chemicals narrowed its 2019 forecast for earnings before interest, tax, depreciation and amortisation (EBITDA) to between 1.6 billion euros (1.4 billion pounds) and 1.7 billion euros from the previous range of 1.5 billion euros to 2 billion euros as the company reported mixed third-quarter results.

Covestro’s third-quarter EBITDA was slightly ahead of consensus, but both EBIT and net income came in below expectations.

The former Bayer subsidiary, which makes chemicals for heat insulation foams and transparent polycarbonate plastics, reported a 70% drop in third-quarter net income to 147 million euros, slightly below the 150 million euros expected on average by analysts in a company-provided consensus.

German rival BASF (BASFn.DE) last week reported a 24% drop in its quarterly operating income. The world’s largest chemicals company by sales said uncertainty over trade disputes weighed on prices for its basic petrochemicals and foam ingredients.

Volumes at Covestro’s polyurethane division provided a positive surprise, but coatings, adhesives and specialties were a disappointment due to weak demand across all industries, the company said.

“Our volume growth indicates that our business is well diversified across various industries,” Chief Executive Markus Steilemann said, adding that growth was attributable mainly to the construction, furniture, electrical and electronics industries.

Reporting by Zuzanna Szymanska in Gdansk; Editing by Himani Sarkar/Amy Caren Daniel/Jane Merriman

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