Novozymes misses Q2 forecasts, reaffirms guidance

COPENHAGEN Thu Aug 11, 2011 10:56am EDT

COPENHAGEN (Reuters) - Slower sales in a volatile market held back second-quarter operating profit growth at industrial enzymes producer Novozymes and pulled earnings below consensus forecasts.

Novozymes shares slumped nearly 14 percent but rebounded from lows to trade down 3.4 percent by 10:26 a.m. EDT, underperforming a 1 percent drop in the Copenhagen bourse bluechip index.

The stock was hammered despite Novozymes saying it would launch a share buyback worth up to 2 billion crowns ($381 million) and gradually lift its dividend yield from 2012.

Earnings before interest and tax (EBIT) rose to 578 million Danish crowns in April-June from 574 million in the same quarter last year, said Novozymes. Its enzymes are used to make many consumer products from detergents to biofuels.

The result lagged an average estimate of 612 million crowns in a Reuters poll of analysts, whose EBIT forecasts ranged from 553 million to 645 million.

"There is more volatility in our end markets but this is not a downward trend, rather there are just some big movements," Chief Financial Officer Benny Loft told Reuters.

Enzymes business chief Peder Holk Nielsen said in a conference call that the second-quarter performance was within the range of normal fluctuations. "I don't see any change in the underlying business -- it is really down to quarterly swings," he said.

Second-quarter revenue grew 3 percent year on year to 2.54 billion crowns, lagging analysts' average 2.71 billion estimate and slowing from first-quarter growth of 16 percent.

Analysts said increased macroeconomic uncertainty casts a shadow over the long-awaited take-off of the second-generation bioethanol business in the United States, an industry to which Novozymes aims to supply enzymes in future.

Alm. Brand analyst Michael Friis Jorgensen said the results were "not really disappointing," but added the shares were hit by worries about a possible delay in the ramp-up of the second-generation biofuel business.

"They are priced expensively (because of second-generation biofuel expectations), so you see a negative reaction," Jorgensen said.

Second-generation bioethanol can be produced with plant waste such as corn cobs, corn stover or sugar cane bagasse, instead of with food crops.

It is seen as a huge potential growth area if ethanol producers build industrial-scale plants which Novozymes would supply with enzymes, as it already does to producers of first-generation bioethanol made mainly from corn.

"There aren't any critical signs that something has gone wrong -- it is more a matter of the growth being a bit weaker coming into the second quarter compared to what we saw at the beginning of the year," Sydbank analyst Morten Imsgard said.

"I am looking at 2014 before I see meaningful contribution from second-generation ethanol production, and that assumes projects getting started now."

Novozymes R&D chief Per Falholt said, however, that Novozymes still expects the first industrial-scale plants for second-generation biofuel to be in operation in 2012 and 2013.

Novozymes stood by its earlier forecast for full-year 2011 revenue in Danish crowns and EBIT to grow by 8-11 percent, and for its EBIT margin this year to be around 22 percent.

"I cannot imagine a situation where we would not meet our EBIT target," Chief Executive Steen Riisgaard told the conference call, adding that Novozymes had flexibility to take its foot off the investment gas pedal if needed and a good track record on cost control.

The full-year sales outlook is based partly on expectation that the U.S. biofuel industry will produce roughly 13.8 billion gallons of ethanol in 2011, up about 4 percent on 2010, Novozymes said.

Novozymes bumped up guidance for 2011 free cash flow to 1.1-1.2 billion crowns from 1.0-1.1 billion.

Household care enzymes, which accounted for 31 percent of total sales in the first half of the year, are expected to be the strongest contributor to full-year growth, Novozymes said.

($1 = 5.254 Danish Crowns)

(Editing by David Cowell)