Evonik saves for forecast improvement
Evonik is growing more confident and raising its expectations for the year as a whole. However, the market's reaction is rather reserved. The increase in earnings is merely a stabilization and not growth. Moreover, the better results are solely due to internal factors. Despite higher prices, sales remained constant.
Specialty chemicals company Evonik earned more than expected in the second quarter due to its cost-cutting program and higher prices for animal nutrition products. The company now expects an adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of 578 million Euro for the period from April to June, up from the analysts' forecast of 531 million Euro. A year ago, the EBITDA stood at 450 million Euro.
The better-than-expected performance was attributed to "continuous cost discipline," strong volume growth in the Specialty Additives segment, whose products are used in mattresses or floor coverings, and a recovery in prices in the Animal Nutrition business segment. Sales remained at around 3.9 billion Euro in the quarter, the same level as the previous year. However, Evonik was more profitable: The adjusted EBITDA margin increased by 3.1 percentage points to 14.7%.
Evonik is now raising its profit forecast for the year 2024 despite the still weak industry outlook. The company now expects an adjusted EBITDA between 1.9 billion and 2.2 billion Euro, up from the previous forecast of 1.7 billion to 2.0 billion Euro. The company will present final quarterly figures on August 1.
Jefferies analysts were cautious in their comments. Since the factors at play were company-specific and not market-driven, the impact on the entire sector would be limited. There was no significant impact on the stock market as a result. Instead, it was a step back. The reason being the outlook. The raised forecast only indicated that the profit level in the second half of the year could at best be defended, the market noted.
The chemical industry has long been plagued by weak demand and high production costs. The companies responded with cost-cutting measures. Evonik, for instance, announced the elimination of 2,000 jobs, as did industry leader BASF and rival Covestro. With the program, the companies aim to reduce costs by around 400 million Euro, Evonik announced in March. However, the prospects for the industry are brightening up now. The industry association VCI expects a production increase of 3.5% and a plus of 1.5% in the industry turnover.
- Evonik's quarterly figures showcased a significant improvement in earnings, with an adjusted EBITDA of 578 million Euro, surpassing analysts' expectations, which is primarily due to internal factors such as cost-cutting and higher prices in the Animal Nutrition segment.
- In contrast to Evonik, the MDax Companies in the chemical industry are still grappling with weak demand and high production costs, leading many companies to implement cost-cutting measures to reduce costs and improve profits.
- Despite Evonik's strong quarterly figures and raised profit forecast for the year 2024, the overall outlook for the economy and the Chemical industry as a whole remains weak, with analysts cautious about the impact of company-specific factors on the entire sector.
