May 6, 2020 / 5:32 AM / 20 days ago

Disinfectant demand helps Lanxess beat profit forecasts, but harder virus hit coming

(Reuters) - German specialty chemicals maker Lanxess (LXSG.DE) reported slightly stronger-than-expected quarterly profit on Wednesday, with firm demand for disinfectant ingredients offsetting a coronavirus-driven slump in engineering plastics.

FILE PHOTO: A logo of Lanxess is seen next to dark clouds at Cologne Bonn airport, March 27, 2015. REUTERS/Wolfgang Rattay

The company cut its full-year outlook, however, warning the impact of the pandemic was likely to intensify in the next two quarters.

Lanxess, whose ingredients are used in surface disinfectants, hand sanitizers and soaps, said growth in its consumer protection and specialty additives segments helped mitigate the impact of the outbreak in the first quarter.

That offset a further drop in demand from the auto industry, which accounts for 20% of Lanxess’ sales.

Chief Executive Matthias Zachert said that the ongoing second quarter has been hit by production closures in the auto industry, while going into the third quarter, the biggest impact would come from the wider economic climate as consumers are less likely to buy cars or electronics.

“I prepare my company for a hard recession this year. And I say to my people, let’s even be prepared for two years of hard recession,” Zachert said during an investor call.

The consumer protection segment, which includes antiviral disinfectants, will be one of the company’s most resilient businesses, with its profitability likely to grow in 2020, he added.

The company said in February it was boosting production volumes of its disinfectant Rely+On Virkon to meet rising demand, and has since donated the solution to several countries hit by the pandemic.

The Cologne-based group’s first-quarter earnings before interest, tax, depreciation and amortization (EBITDA) excluding exceptional items came in at 245 million euros ($265.1 million).

That was down 9.9% from the previous year but slightly above a company-provided consensus of 240 million euros.

Lanxess forecast full-year EBITDA of between 800 million and 900 million euros, compared to its March forecast of 900 million to 1.0 billion euros.

It said it expected second-quarter EBITDA to come in between 200 million and 250 million euros, but warned the figure was likely to be at the lower end of this range.

The company said it would cut growth-focused investments by around 50 million euros this year by postponing projects in aviation and auto industries.

Lanxess has taken steps to bolster its cash position during the pandemic, such as suspending its share buyback program in early April.

Reporting by Milla Nissi and Bartosz Dabrowski in Gdansk; Editing by Tomasz Janowski, Jan Harvey and Emelia Sithole-Matarise

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