BASF Profit Hit by Stiff Competition, Higher Costs
27 October 2015 BASF reported a 6% rise in third-quarter sales on increased volumes and prices in its Agricultural Solutions business, but higher costs caused earnings to drop significantly.
The depreciation of local currencies in emerging markets led to negative currency effects (volumes 6%, prices 10%, currencies –10%).
Income from operations before special items fell 84% from a year ago to $7.7 million.
Sales declined considerably in Europe, weighed down by lower volumes. In the fungicide business, volumes fell in western Europe after higher year-on-year demand in the first half of 2015. Volumes were down in the canola herbicides business due to increased competitive pressure.
North America was a bright spot, as sales rose considerably, mainly on higher volumes and prices for fungicides and herbicides together with positive currency effects. In the fungicides business, volumes growth came primarily from a high fungal infection rate toward the end of the season; for herbicides, this development was due to increased demand for dicamba.
In South America, sales rose due to higher prices and volumes. In anticipation of further price hikes following the depreciation of local currencies, many customers put in their orders early. This trend more than compensated for negative currency effects and the impact of an increasingly difficult market environment.
In Asia, income from operations before special items declined considerably compared with the third quarter of 2014, as it incurred higher costs from capacity increases and inventory reduction. Sales fell considerably, hurt by a decline in volume in India, due to weaker business with soy herbicides brought about by a very dry growing season and increased competition from generic manufacturers.
Speaking about the business as a whole, BASF said that in the first three quarters of 2015, growth in the global economy, global industrial production and the chemical industry remained considerably below our expectations. The economic environment clouded over in important emerging markets, especially in China.
“For the 2015 business year, we now expect a more challenging economic environment than had been anticipated in the middle of the year. In addition to weaker economic development and the lower price of oil, the divestitures concluded in the third quarter of 2015 will put a strain on sales and earnings development. We are therefore adjusting our outlook for 2015. We now expect a slight decrease in sales and income from operations before special items,” BASF said, again speaking about the business as a whole.
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