February 28, 2020 / 9:00 AM / a month ago

BASF flags risk of lower earnings on coronavirus hit

LUDWIGSHAFEN, Germany (Reuters) - Germany’s BASF (BASFn.DE) warned that earnings could drop further this year after the fallout from the coronavirus outbreak has started to weigh on demand, further slowing down the auto industry, its largest customer group.

FILE PHOTO: The chemical company BASF building in Levallois-Perret, near Paris, France, is seen at sunset, November 29, 2018. REUTERS/Christian Hartmann/File Photo

The world’s largest chemicals company by sales said on Friday that the virus heightened uncertainty in the global economy in January and February, and it does not expect trade conflicts between the United States and its trading partners to ease further.

“The coronavirus has added a new factor that is considerably hampering growth at the beginning of the year, especially in China,” said Chief Executive Martin Brudermueller.

“Lower demand and production outages in many industries are already visible consequences of the measures taken to prevent the further spread of the virus.”

The company said earnings before interest and tax (EBIT), adjusted for one-offs, would likely be in a range of 4.2 billion euros ($4.6 billion) to 4.8 billion euros this year, below analyst projections of more than 5 billion.

Last year, the company generated EBIT of 4.54 billion euros, down 28% from 2018.

BASF, whose products include coatings, catalytic converters and foam chemicals, was hoping the fallout from the coronavirus would no longer have a significant effect during the second half of the year but cautioned the economy could be slow to catch up.

“We do not expect the corona effects to be fully offset during the course of the year,” Brudermueller said.

Analysts at Bernstein Research noted a “severity of the wording surrounding the impact of coronavirus”.

Virus-related disruptions to international travel and supply chains are fuelling fears of recession in the United States and the Euro zone with share prices on track for their worst week since the global financial crisis.

Shares in BASF were down 3.3% in early trade compared to a 3.86% drop on the Dax .GDAXI.

DEEPER CUTS

BASF predicted a slight gain in full-year revenue. A continued output decline in the automotive industry, which accounts for about one fifth of BASF’s business, was tempering moderate growth in most other customer industries, it added.

Adjusted EBIT increased by 23% to 765 million euros in the fourth quarter ended December, beating analysts’ projections thanks to a stronger-than-expected agriculture business.

BASF said it was speeding up a program of cutbacks that started last year and will see the reduction of 6,000 jobs. The group is now eyeing 1.3-1.5 billion euros in cost cuts this year, more than the 1-1.3 billion initially targeted.

Spending on plants and equipment would be “disciplined” this year, it added, with the investment budget edging higher to 3.4 billion euros from 3.3 billion last year as it builds sites in Guangdong, China and Mundra, India and seeks to boost battery materials output.

Editing by Thomas Seythal, Amy Caren Daniel and Carmel Crimmins

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