BASF trims profit target

31-Oct-08

BASF expects to report its first decline in earnings in 7 years on effects of a global economic slowdown affecting demand for plastics and resins used in electronics. Earnings before interest, tax and special items declined 8% in Q3 to €1.57 bln (US$2 bln). BASF may struggle to meet its new target of matching last year´s operating profit, dropping a prior forecast for a slight improvement. CEO Juergen Hambrecht plans to cut more than 1,000 jobs and trim factory output to save €1 bln off costs by 2012. The move is aimed at countering a demand slump in main markets, a reduction in customer inventories and falling crude prices. Demand is expected to see a significant fall in consumer end markets such as auto, building and textiles. Quarterly sales increased 13% to €15.8 bln. BASF is focusing on improving cash flow and reducing its asset base. Factories have been slimmed down and maintenance-related shutdowns brought forward to counter deteriorating markets. BASF has spent more than US$8 bln on purchases to broaden its product range and help protect it from economic cycles. Its 2006 purchase of catalytic-converter maker Engelhard increased dependence on the automotive industry at a time when U.S. industrywide auto sales are posting their biggest declines since 1991. Net income declined to €758 mln from €1.21 bln. Higher prices for pesticides, spurred by spiraling grain prices, boosted earnings at the agricultural division. Syngenta SA, the maker of the Karate pesticide brand, is forecasting 35 percent earnings growth this year as farmers spend more on chemicals and high-yield crops, even as global economies slow. Bayer confirmed its sales and earnings forecasts for the year, helped by growth at the farm chemicals division. Like Syngenta, BASF has entered the market for genetically modified seeds that resist bugs, in a challenge to St. Louis- based Monsanto Co. Expansion in Europe has faltered because of a lack of approval for its Amflora potato. It has filed a case with the European Court in Luxembourg saying the European Commission failed to act, depriving BASF of as much as 30 million euros a year. BASF will reexamine options for its styrenics unit as finding a buyer for the division in the current economic environment is ``difficult,´´ Hambrecht said today. BASF has been trying to sell the business for more than a year and in August added its styrenic copolymer unit to the package to lure more potential buyers.