First-quarter results at chemicals giant BASF (BASFn.DE) and smaller peer Clariant (CLN.VX) defied a surge in raw material costs, demonstrating a pricing power that surprised even the most bullish analysts. BASF, the world's largest chemicals company by sales, said on Friday that operating profit jumped 40 percent to 2.7 billion euros ($3.77 billion), exceeding the 2.4 billion euro average estimate in a Reuters poll of analysts and beating even the highest forecast. [ID:nLDE7421DS]
"We see good pricing power. We haven't seen any change to that since May," said Finance Chief Kurt Bock, slated to take over as Chief Executive on Friday.
"There is greater pricing discipline. That's a strong feature of the entire industry," Bock said in an analyst call, adding that, to his surprise, some of BASF's products were selling at record margins.
Adjusted operating profit at Clariant, a Swiss maker of additives for plastics, leather and textiles, jumped 26 percent to 230 million Swiss francs ($239 million), well above the highest analyst prediction. [ID:nLDE66Q1SN]
BASF saw a pick-up in demand from carmakers for coatings and catalytic converters, and enjoyed a boost recent takeovers, while Clariant benefited from cost cuts. Both said Asia remained a key growth driver.
Clariant's sales, however, fell 6 percent as the surge in the Swiss franc -- up about 16 percent against the dollar over the first quarter from a year earlier -- weighed on revenues from abroad.
Chief Financial Officer Patrick Jany said he was confident that an expected gain in raw-material costs by a mid-teens percentage this year could be passed on to customers.
Crude oil, from which most chemical products are derived, traded more than 25 percent higher over the first quarter than a year earlier.
Analysts at Wegelin said Clariant's results were convincing.
"The improved margins, despite an unfavourable exchange rate and higher raw material prices, should show that they've regained market power," they wrote in a note.
Large rivals such as Dow Chemical (DOW.N) and DuPont (DD.N), the largest U.S. chemical makers, as well as Saudi Arabia's SABIC (2010.SE), also posted forecast-beating quarterly earnings in April. [ID:nN21233250] [ID:nN28232900] [ID:nLDE73H1FJ]
Shares in BASF gave back early gains to trade down 0.8 percent at 65.50 euros by 1110 GMT, while Clariant was 0.9 percent lower at 18.04 francs, with traders citing profit taking in both stocks following gains in recent weeks.
The STOXX Europe 600 Chemicals .SX4P index was down 0.25 percent.
BASF said adjusted EBIT, excluding the effect of oil taxes that cannot be offset against German corporate taxes, would rise significantly this year and that the outlook had improved somewhat since late February.
BASF also expects to earn a high premium on its cost of capital this year, a measure it uses for setting its annual dividend payments. That would put it on track to raise its annual payout to shareholders again next year.
Factbox on BASF's acquisitions [ID:nLDE7421HR]
Recent takeovers and related cost cuts would further bolster BASF. In December, BASF completed the purchase of Germany's Cognis, a maker of additives for household products, having bought Swiss rival Ciba in 2009. That made BASF the largest maker of additives for plastics and one of the biggest suppliers of paper chemicals.
Finance Chief Kurt Bock has said BASF would continue looking for growth in Asia, though finding takeover targets there was a particular challenge. [ID:nLDE7421IO]
For its part, Clariant this year returned to the M&A scene and bought Germany's Sued-Chemie (SUCG.DE) after years of focusing on cost cuts in response to low-cost rivals in Asia. (Additional reporting by Frank Siebelt, Harro Ten Wolde and Caroline Copley in Zurich; Editing by Will Waterman) ($1=.7158 Euro)
"We see good pricing power. We haven't seen any change to that since May," said Finance Chief Kurt Bock, slated to take over as Chief Executive on Friday.
"There is greater pricing discipline. That's a strong feature of the entire industry," Bock said in an analyst call, adding that, to his surprise, some of BASF's products were selling at record margins.
Adjusted operating profit at Clariant, a Swiss maker of additives for plastics, leather and textiles, jumped 26 percent to 230 million Swiss francs ($239 million), well above the highest analyst prediction. [ID:nLDE66Q1SN]
BASF saw a pick-up in demand from carmakers for coatings and catalytic converters, and enjoyed a boost recent takeovers, while Clariant benefited from cost cuts. Both said Asia remained a key growth driver.
Clariant's sales, however, fell 6 percent as the surge in the Swiss franc -- up about 16 percent against the dollar over the first quarter from a year earlier -- weighed on revenues from abroad.
Chief Financial Officer Patrick Jany said he was confident that an expected gain in raw-material costs by a mid-teens percentage this year could be passed on to customers.
Crude oil, from which most chemical products are derived, traded more than 25 percent higher over the first quarter than a year earlier.
Analysts at Wegelin said Clariant's results were convincing.
"The improved margins, despite an unfavourable exchange rate and higher raw material prices, should show that they've regained market power," they wrote in a note.
Large rivals such as Dow Chemical (DOW.N) and DuPont (DD.N), the largest U.S. chemical makers, as well as Saudi Arabia's SABIC (2010.SE), also posted forecast-beating quarterly earnings in April. [ID:nN21233250] [ID:nN28232900] [ID:nLDE73H1FJ]
Shares in BASF gave back early gains to trade down 0.8 percent at 65.50 euros by 1110 GMT, while Clariant was 0.9 percent lower at 18.04 francs, with traders citing profit taking in both stocks following gains in recent weeks.
The STOXX Europe 600 Chemicals .SX4P index was down 0.25 percent.
BASF also expects to earn a high premium on its cost of capital this year, a measure it uses for setting its annual dividend payments. That would put it on track to raise its annual payout to shareholders again next year.
Factbox on BASF's acquisitions [ID:nLDE7421HR]
Recent takeovers and related cost cuts would further bolster BASF. In December, BASF completed the purchase of Germany's Cognis, a maker of additives for household products, having bought Swiss rival Ciba in 2009. That made BASF the largest maker of additives for plastics and one of the biggest suppliers of paper chemicals.
Finance Chief Kurt Bock has said BASF would continue looking for growth in Asia, though finding takeover targets there was a particular challenge. [ID:nLDE7421IO]
For its part, Clariant this year returned to the M&A scene and bought Germany's Sued-Chemie (SUCG.DE) after years of focusing on cost cuts in response to low-cost rivals in Asia. (Additional reporting by Frank Siebelt, Harro Ten Wolde and Caroline Copley in Zurich; Editing by Will Waterman) ($1=.7158 Euro)
