UPDATE 3-BASF says 2013 profit goal a challenge, shares drop

Thu Jul 25, 2013 5:15am EDT

* Q2 adjusted EBIT 1.8 bln euros, 10 pct below avg estimate

* Says to slow hiring in emerging markets

* "Chinese growth engine no longer running at full power"

* Shares drop 4.5 percent

By Ludwig Burger

FRANKFURT, July 25 (Reuters) - Shrinking European markets and slower growth in China weighed on BASF's second-quarter profit and prompted the world's largest chemicals company by sales to call its 2013 profit target into question.

"Achieving our earnings target is significantly more challenging today than we had expected at the beginning of the year", BASF said on Thursday. It still aims to exceed 2012 sales and adjusted earnings before interest and tax.

The current difficulties mean the group's longer-term targets are also challenging, Chief Executive Kurt Bock told journalists.

BASF shares dropped 4.3 percent to a three-month low, the worst performer on the STOXX Europe 600 Chemicals index, which was down 0.5 percent.

"After the weaker Q2 development, we will likely adjust our earnings estimates downward," said LBBW analyst Ulle Woerner.

Second-quarter earnings before interest and tax (EBIT), adjusted for one-off items, fell 5 percent to 1.8 billion euros ($2.38 billion).

That was 10 percent short of the 2.01 billion euro average estimate in a Reuters poll of analysts, because of weakness in its basic chemicals and petrochemicals businesses.

Earnings at its gas trading unit, which it is swapping for bigger stakes in Gazprom's Siberian gas fields, also missed the market view due to lower margins.

Kepler Cheuvreux analyst Markus Mayer said that, while group results were far below consensus, earnings from specialty chemicals for automakers and builders were better than expected.

BASF said markets in its European home region, where it makes more than half of its sales, were shrinking slightly, while growth in China, its most important future market, was sputtering.

"The Chinese growth engine is no longer running at full power," it said on Thursday, adding that it would slow the pace of new staff additions in emerging markets, although it would stick with its investment plans.

In April, BASF announced a hiring spree among chemicals and materials researchers in the Asia Pacific region as it aims to double sales to customers there by 2020.

Chemicals makers have felt the strain as their earnings tend to react strongly to swings in the economic cycle. They are exposed to cyclical manufacturing industries and their massive overheads prevent a swift reduction of expenses in a downturn.

At BASF's U.S. rival DuPont, sales of agricultural pesticides helped quarterly profit scrape past analyst estimates, as paint pigments lagged.

Dutch paints and chemicals firm AkzoNobel last week reported disappointing quarterly results due to weak demand in the United States and Europe.

Dow Chemical is due to report earnings later on Thursday.

FILED UNDER: