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Everchem Updates
VOLUME XXI
September 14, 2023
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July 28, 2022
BASF SE (BASFY) CEO Martin Brudermüller on H1 2022 Results – Earnings Call Transcript
Jul. 27, 2022 11:00 AM ETBASF SE (BASFY), BFFAF1 Like
BASF SE (OTCQX:BASFY) H1 2022 Results Earnings Conference Call July 27, 2022 4:00 AM ET
Company Participants
Nina Schwab-Hautzinger – Senior Vice President, Corporate Communications and Government Relations
Martin Brudermüller – Chairman of the Board of Executive Directors
Hans-Ulrich Engel – Chief Financial Officer
Stefanie Wettberg – Senior Vice President Investor Relations
Martin Brudermüller
Good morning, ladies and gentlemen. On July 11, BASF released preliminary figures for the second quarter of 2022. Today, Has Engel and I will provide you with further details regarding our business development.
In the second quarter, BASF again delivered strong earnings despite continued high raw material costs and energy prices. To put the BASF team’s performance into perspective, let’s begin with a snapshot of the current macroeconomic environment.
Compared to quarter one 2022, the uncertainty and intransparency regarding the short- and mid-term economic development have increased. The main reasons for this are the ongoing war in Ukraine, the risks associated with natural gas supplies in Europe and the resulting high prices for raw materials and energy, as well as China’s zero COVID strategy and related lockdowns.
Despite these challenges, the demand from our customer industries remained generally solid. However, global automotive industry and production in the second quarter of 2022 declined by 6% compared with Q1 2022.
For 2022, IHS Markit has adjusted its forecast to about 80.8 million units. This is a reduction of around 2.1 million units compared with the forecast of the beginning of the year.
In the second quarter of 2022, China’s economic growth was negatively impacted by the severe lockdowns in several large cities, particularly in Shanghai. In the second half of 2022, China’s economic development is expected to improve, mainly due to a more differentiated strategy to tackle the coronavirus and dedicated financial stimulus measures by the Chinese government, particularly for the automotive industry. To counter high inflation, central banks have started to raise interest rates. This will increasingly impact demand in the coming months and reduce growth in 2023.
Let’s now briefly look at chemical production by region in Q2 2022 before we turn to the financial performance of BASF. According to the currently available data, global chemical production increased by just 1.3%. Despite a strong comparison base and the pandemic-related lockdown, chemical production in China increased by 3.1%, with 2.5% chemical production also grew in North America. By contrast, chemical production declined by 2.6% in Europe and by 0.6% in Asia excluding China.
I will now move on to the BASF business development in Q2 2022. Our upstream and downstream businesses successfully implemented further price increases and largely passed on the higher prices for raw materials and energy.
Due to the lockdowns in China, BASF sales volumes in the country declined by 17.4% in the second quarter of 2022 compared with an increase of 10.4% in Q2 2021. This change was driven by significantly lower sales volumes in April. Sequentially, however, sales volume recovered again strongly in May and June.
In Q2 2022, EBIT before special items was at the level of the very strong prior year quarter and amounted to €2.3 billion. The higher earnings were driven by the agricultural solutions, nutrition and care and industrial solution segments. Other also contributed to the positive performance in Q2 2022.
I would like to add that the positive business development in the second quarter of 2022 continued in July. Since we are often asked about this, I would like to stress once again. Currently, all of BASF European sites are supplied with natural gas in line with demand. We are monitoring developments very closely, in particular at our largest site in Ludwigshafen, where we use considerable amount of gas.
In this context, I will therefore briefly address the details of the alert level regarding gas supply declared by the German government on June 23, 2022. The second stage of the emergency plan for gas comprises four key measures that leave responsibilities and market mechanisms intact.
First, all market participants such as gas suppliers, gas traders, all network operators are obliged to take coordinated action to avoid temporary or regional gaps in supply in Germany and to achieve the target fill level of 85% for German gas storage facilities on October 1. To this end, the market area manager Trading Hub Europe has received an additional credit line of €15 billion from the federal government to purchase gas.
Second, market participants including BASF are obliged to participate in a crisis team that must report to the Federal Ministry of Economic Affairs on a daily basis.
Third, the German government is taking legal measures to restart coal-fired power plants in Germany to contribute to electricity production and safe gas in power production.
And fourth, Germany’s federal network agency wants to open a market platform where gas that is not required by companies can be auctioned.
In the following, I also want to commend on the third and final emergency stage of the emergency plan for gas. This stage comes into force when there is an unexceptionally high demand for natural gas, a significant disruption in natural gas supplies or other significant deterioration in the supply situation.
Then, according to the regulations, non-market-based measures must be taken to ensure natural gas supplies, in particular, to protected customers. According to the Ministry of Economic Affairs, the federal network agency will become the federal load dispatcher, and will regulate the distribution of natural gas in coordination with the network operators.
In this process, certain consumer groups are particularly protected. These groups include households, social institutions, such as hospitals and gas-fired power plants, that also supply heat to households, but they also include industrial companies that manufacture products that are crucial for society. In this case, gas is allocated according to the relevance of the company to society.
We are coordinating closely with the government agencies, suppliers and network operators. Should the German government declare the third and final emergency stage, we currently expect that BASF would still receive sufficient natural gas to maintain operations at the Ludwigshafen site at reduced load.
We are also confident with regard to Schwarzheide, our second largest site in Germany, here, for example, we are able to generate 100% of our power and steam demand using fuel oil. For BASF production sites outside of Europe, we expect hardly any impact in the event of a European gas shortage.
I will now provide you with further details regarding our natural gas demand in Europe and give an update on our mitigation measures in the event of natural gas supply shortages.
In 2021, BASF natural gas demand in Europe amounted to 48 terawatt hours, whereof 37 terawatt hours were consumed in Ludwigshafen. In Europe, we use around 60% of our natural gas demand to produce power and steam. The remaining 40% is used as feedstock.
At our Verbund site in Ludwigshafen, the split is around 50% for each of the two categories. If the natural gas supply does not fall below around 50% of our maximum demand, we will be able to operate the Verbund in Ludwigshafen at a reduced load.
Our mitigation measures include the following. Where technically feasible, the preparations to substitute natural gas, for example, to fuel oil are progressing well and technical optimizations are in place. In addition, we have developed scenarios and implemented measures to optimize production at our European sites. We are reducing production at facilities that require large amounts of natural gas such as ammonia plants. This is standard practice in the chemical industry, for example, when margins are not economically viable.
The graph on this slide shows the largest consumers of natural gas at the Ludwigshafen . Ammonia is the largest natural gas consumer, with around 50% of the total demand as feedstock.
In contrast to some other gas consumers at the Ludwigshafen site, external sourcing of ammonia is possible. Externally sourced ammonia is therefore an important element of our risk mitigation considerations in the event of a major curtailment of natural gas volume.
The second biggest consumer is the acetylene plant, followed by syngas production. Together, both plants account for almost another 25% of the total natural gas demand as a feedstock. Power and steam production at Ludwigshafen can partially be switched to fuel oil, and that’s substituting around 15% of the natural gas otherwise needed for this.
Compared with Q1 2022, natural gas prices declined slightly in the second quarter of 2022, but remained on very high level. In Q2 2022, the additional cost for BASF European sites amounted to €800 million compared with the same quarter of 2021. In comparison with the second quarter of 2020, the increase was €1 billion. To mitigate these higher costs, we have implemented and will continue to implement further price increase.
I will now move on to the volume development by segment. In the second quarter of 2022, sales volumes of BASF Group declined slightly. This was mainly due to a lower precious metal volumes, which accounted for 99% of the volume decline in the Surface Technologies segment. Excluding this effect, BASF sales volumes were almost stable with minus 0.2% compared with the second quarter of 2021.
On a segment level, Agricultural Solutions and Nutrition & Care saw a positive volume development.
Markus Mayer
One of several – more questions on the guidance basically. Have I understood it correctly that you are still confident to reach top end of your EBIT guidance range. And also, as an add-on question to this, the potential production cuts in BDO, ammonia and acetylene is already included in the guidance as in the lower end, I guess, or is it basically already still outside of the guidance? And also, the cost reduction measures, have they been already included in the guidance?
Martin Brudermüller
So, I think this is all I think a realistic picture. Yes, we think we can reach the upper level. Basically, I hope that was seen right from you, what we described as a kind of a soft landing towards the year end. So, nothing going rigorously down, but it is softening on the demand side. And that means supply/demand is softening, but that means also pricing power is softening. So, this all goes basically weaker and actually the idea is that when the softening and the weakening of the margins is counteracted by some of the cost reductions, this is partially postponement, which I think is also natural to think about, when do you need what when you are in a softer environment, but it also might come down to the point that we also think structurally to cut some of the costs and really go to lower overall cost basis. So, that includes certainly also our assumptions, which kind of products we might reduce and we might buy in, and ammonia, you mentioned, is actually the biggest factor here. So I think you should take that with a lot of positive confidence from our side.
July 28, 2022
BASF SE (BASFY) CEO Martin Brudermüller on H1 2022 Results – Earnings Call Transcript
Jul. 27, 2022 11:00 AM ETBASF SE (BASFY), BFFAF1 Like
BASF SE (OTCQX:BASFY) H1 2022 Results Earnings Conference Call July 27, 2022 4:00 AM ET
Company Participants
Nina Schwab-Hautzinger – Senior Vice President, Corporate Communications and Government Relations
Martin Brudermüller – Chairman of the Board of Executive Directors
Hans-Ulrich Engel – Chief Financial Officer
Stefanie Wettberg – Senior Vice President Investor Relations
Martin Brudermüller
Good morning, ladies and gentlemen. On July 11, BASF released preliminary figures for the second quarter of 2022. Today, Has Engel and I will provide you with further details regarding our business development.
In the second quarter, BASF again delivered strong earnings despite continued high raw material costs and energy prices. To put the BASF team’s performance into perspective, let’s begin with a snapshot of the current macroeconomic environment.
Compared to quarter one 2022, the uncertainty and intransparency regarding the short- and mid-term economic development have increased. The main reasons for this are the ongoing war in Ukraine, the risks associated with natural gas supplies in Europe and the resulting high prices for raw materials and energy, as well as China’s zero COVID strategy and related lockdowns.
Despite these challenges, the demand from our customer industries remained generally solid. However, global automotive industry and production in the second quarter of 2022 declined by 6% compared with Q1 2022.
For 2022, IHS Markit has adjusted its forecast to about 80.8 million units. This is a reduction of around 2.1 million units compared with the forecast of the beginning of the year.
In the second quarter of 2022, China’s economic growth was negatively impacted by the severe lockdowns in several large cities, particularly in Shanghai. In the second half of 2022, China’s economic development is expected to improve, mainly due to a more differentiated strategy to tackle the coronavirus and dedicated financial stimulus measures by the Chinese government, particularly for the automotive industry. To counter high inflation, central banks have started to raise interest rates. This will increasingly impact demand in the coming months and reduce growth in 2023.
Let’s now briefly look at chemical production by region in Q2 2022 before we turn to the financial performance of BASF. According to the currently available data, global chemical production increased by just 1.3%. Despite a strong comparison base and the pandemic-related lockdown, chemical production in China increased by 3.1%, with 2.5% chemical production also grew in North America. By contrast, chemical production declined by 2.6% in Europe and by 0.6% in Asia excluding China.
I will now move on to the BASF business development in Q2 2022. Our upstream and downstream businesses successfully implemented further price increases and largely passed on the higher prices for raw materials and energy.
Due to the lockdowns in China, BASF sales volumes in the country declined by 17.4% in the second quarter of 2022 compared with an increase of 10.4% in Q2 2021. This change was driven by significantly lower sales volumes in April. Sequentially, however, sales volume recovered again strongly in May and June.
In Q2 2022, EBIT before special items was at the level of the very strong prior year quarter and amounted to €2.3 billion. The higher earnings were driven by the agricultural solutions, nutrition and care and industrial solution segments. Other also contributed to the positive performance in Q2 2022.
I would like to add that the positive business development in the second quarter of 2022 continued in July. Since we are often asked about this, I would like to stress once again. Currently, all of BASF European sites are supplied with natural gas in line with demand. We are monitoring developments very closely, in particular at our largest site in Ludwigshafen, where we use considerable amount of gas.
In this context, I will therefore briefly address the details of the alert level regarding gas supply declared by the German government on June 23, 2022. The second stage of the emergency plan for gas comprises four key measures that leave responsibilities and market mechanisms intact.
First, all market participants such as gas suppliers, gas traders, all network operators are obliged to take coordinated action to avoid temporary or regional gaps in supply in Germany and to achieve the target fill level of 85% for German gas storage facilities on October 1. To this end, the market area manager Trading Hub Europe has received an additional credit line of €15 billion from the federal government to purchase gas.
Second, market participants including BASF are obliged to participate in a crisis team that must report to the Federal Ministry of Economic Affairs on a daily basis.
Third, the German government is taking legal measures to restart coal-fired power plants in Germany to contribute to electricity production and safe gas in power production.
And fourth, Germany’s federal network agency wants to open a market platform where gas that is not required by companies can be auctioned.
In the following, I also want to commend on the third and final emergency stage of the emergency plan for gas. This stage comes into force when there is an unexceptionally high demand for natural gas, a significant disruption in natural gas supplies or other significant deterioration in the supply situation.
Then, according to the regulations, non-market-based measures must be taken to ensure natural gas supplies, in particular, to protected customers. According to the Ministry of Economic Affairs, the federal network agency will become the federal load dispatcher, and will regulate the distribution of natural gas in coordination with the network operators.
In this process, certain consumer groups are particularly protected. These groups include households, social institutions, such as hospitals and gas-fired power plants, that also supply heat to households, but they also include industrial companies that manufacture products that are crucial for society. In this case, gas is allocated according to the relevance of the company to society.
We are coordinating closely with the government agencies, suppliers and network operators. Should the German government declare the third and final emergency stage, we currently expect that BASF would still receive sufficient natural gas to maintain operations at the Ludwigshafen site at reduced load.
We are also confident with regard to Schwarzheide, our second largest site in Germany, here, for example, we are able to generate 100% of our power and steam demand using fuel oil. For BASF production sites outside of Europe, we expect hardly any impact in the event of a European gas shortage.
I will now provide you with further details regarding our natural gas demand in Europe and give an update on our mitigation measures in the event of natural gas supply shortages.
In 2021, BASF natural gas demand in Europe amounted to 48 terawatt hours, whereof 37 terawatt hours were consumed in Ludwigshafen. In Europe, we use around 60% of our natural gas demand to produce power and steam. The remaining 40% is used as feedstock.
At our Verbund site in Ludwigshafen, the split is around 50% for each of the two categories. If the natural gas supply does not fall below around 50% of our maximum demand, we will be able to operate the Verbund in Ludwigshafen at a reduced load.
Our mitigation measures include the following. Where technically feasible, the preparations to substitute natural gas, for example, to fuel oil are progressing well and technical optimizations are in place. In addition, we have developed scenarios and implemented measures to optimize production at our European sites. We are reducing production at facilities that require large amounts of natural gas such as ammonia plants. This is standard practice in the chemical industry, for example, when margins are not economically viable.
The graph on this slide shows the largest consumers of natural gas at the Ludwigshafen . Ammonia is the largest natural gas consumer, with around 50% of the total demand as feedstock.
In contrast to some other gas consumers at the Ludwigshafen site, external sourcing of ammonia is possible. Externally sourced ammonia is therefore an important element of our risk mitigation considerations in the event of a major curtailment of natural gas volume.
The second biggest consumer is the acetylene plant, followed by syngas production. Together, both plants account for almost another 25% of the total natural gas demand as a feedstock. Power and steam production at Ludwigshafen can partially be switched to fuel oil, and that’s substituting around 15% of the natural gas otherwise needed for this.
Compared with Q1 2022, natural gas prices declined slightly in the second quarter of 2022, but remained on very high level. In Q2 2022, the additional cost for BASF European sites amounted to €800 million compared with the same quarter of 2021. In comparison with the second quarter of 2020, the increase was €1 billion. To mitigate these higher costs, we have implemented and will continue to implement further price increase.
I will now move on to the volume development by segment. In the second quarter of 2022, sales volumes of BASF Group declined slightly. This was mainly due to a lower precious metal volumes, which accounted for 99% of the volume decline in the Surface Technologies segment. Excluding this effect, BASF sales volumes were almost stable with minus 0.2% compared with the second quarter of 2021.
On a segment level, Agricultural Solutions and Nutrition & Care saw a positive volume development.
Markus Mayer
One of several – more questions on the guidance basically. Have I understood it correctly that you are still confident to reach top end of your EBIT guidance range. And also, as an add-on question to this, the potential production cuts in BDO, ammonia and acetylene is already included in the guidance as in the lower end, I guess, or is it basically already still outside of the guidance? And also, the cost reduction measures, have they been already included in the guidance?
Martin Brudermüller
So, I think this is all I think a realistic picture. Yes, we think we can reach the upper level. Basically, I hope that was seen right from you, what we described as a kind of a soft landing towards the year end. So, nothing going rigorously down, but it is softening on the demand side. And that means supply/demand is softening, but that means also pricing power is softening. So, this all goes basically weaker and actually the idea is that when the softening and the weakening of the margins is counteracted by some of the cost reductions, this is partially postponement, which I think is also natural to think about, when do you need what when you are in a softer environment, but it also might come down to the point that we also think structurally to cut some of the costs and really go to lower overall cost basis. So, that includes certainly also our assumptions, which kind of products we might reduce and we might buy in, and ammonia, you mentioned, is actually the biggest factor here. So I think you should take that with a lot of positive confidence from our side.
July 28, 2022
Tempur Sealy International Inc.’s (TPX) CEO Scott Thompson on Q2 2022 Results – Earnings Call Transcript
Jul. 27, 2022 10:37 AM ET
Company Participants
Aubrey Moore – Investor Relations
Scott Thompson – Chairman, President and Chief Executive Officer
Bhaskar Rao – Executive Vice President and Chief Financial Officer
Scott Thompson
Thank you, Aubrey. Good morning everyone and thank you for joining us on our 2022 second quarter earnings call. I’ll begin with some commentary on the second quarter, then spend some time discussing how we’re continuing to drive our long-term growth initiatives in the current very fluid operating environment. Then Bhaskar will review our second quarter financial performance in more detail and discuss our updated 2022 guidance, which has been revised to reflect the changes in the market. Finally, I’ll share a few closing remarks regarding how our business model would operate in a recessionary environment, and then we’ll open it up for Q&A.
In the second quarter of 2022, net sales were 1.2 billion and adjusted EPS was $0.58, both slightly below our expectations, primarily due to the U.S. market and a 30 million sales backlog on U.S. Sealy as we brought our new ERP system online. We made significant progress in this backlog and expect to return to normalized lead times by the end of the third quarter.
The second quarter was also impacted by three additional factors: first, whereas flare ups of COVID variances internationally, particularly in our Southeast Asia markets; second, commodity inflation impacting our cost ahead of the timing of our price increases, which went into effect at the end of June and will benefit future quarters; and third, operational investments to secure our supply chain, to retain flavor in order to maintain product quality and customer service.
Our international operation performed in-line with our expectations even as we faced challenges. In North America, the overall operating environment deteriorated during the quarter as the forward outlook for the economy and our sector diminished for all the reasons that have been well reported.
We believe that the overall U.S. mattress industry, our largest market, had its toughest volume decline in 15 years with units down 20% to 25% this quarter compared to last year. This environment again gave us a chance to demonstrate the resilience of our business model as we generated profit, invested in our business, returned capital to our shareholders, and outperformed the market.
The team continues to focus on execution. First, we continue to work on expanding our leading position in domestic U.S. bedding industry. The last few years, our growth initiatives and industry leading products have driven a meaningful outperformance relative to the market. We continue to drive market outperformance with our focused delivery best-in-class product quality and customer service.
Second, we completed our multi-year journey of transitioning more than 50 of our global subsidiaries and using five different ERP systems to using one common system. This investment in consolidating our operations is expected to drive long-term efficiencies across our global operations, enhance cyber security, facilitate customer communications regarding order status and improve our direct-to-consumer capabilities.
We now are truly one company as this completes the merger of Sealy and Tempur. I personally want to thank all of the employees who worked on this critical project. Great job. Third, Stearns & Foster performed very well relative to the market in the second quarter and is currently our fastest growing brand in the domestic market. Additionally, we launched the Stearns & Foster e-commerce website this quarter, although still very small, and is performing ahead of our expectations and ahead of where we were at this time when we launched our successful online [cocooned] [ph] by Sealy.
Consumer research has identified that there is an unmet market need or high-end traditional industry leading products and our Stearns & Foster e-commerce channel is designed to provide additional opportunities to serve this demand. Our approach is similar to our direct Tempur strategy and that we drive meaningful brand awareness to the benefit Stearns & Foster sales across all distribution channels, growing ASP, driving advertising dollars, and profits for all of our partners.
We’ll launch our all new collection of Stearns & Foster mattresses in the fourth quarter. The new Stearns & Foster lines designed to further distinguish our high-end traditional innerspring brand with superior technology, clear product step-up stories, and new contemporary look.
Fourth, in addition to Stearns & Foster launch, the other new product launches in our pipeline continue to be on-track and on-plan, furthering our objective to bring industry leading innovation to market. In the second quarter, we completed the rollout of our new premium Sealy products, which offer improved comfort and support technology. We also launched our new Sealy Natural Collection, which was thoughtfully designed with our commitment to sustainability environmental preservation [mark] [ph].
In the fourth quarter, we expect to launch a Sealy mattress with a best-in-class pressure-relieving gel grid layer at a consumer appealing mid-market price point. This product is designed to target a relatively small category of consumers looking for a non-traditional mattress feel.
In 2023, we expect to begin to roll-out our lineup of all new Tempur mattresses, pillows, and bed bases across both Europe and Asia. This new product line that features exciting customer centered innovation, allows better channel, and customer differentiation and at a wider price point. Retailer’s reaction to this new product and price points today has given us confidence that this updated product strategy will enable us to significantly increase our total international addressable market.
In addition to Asia and Europe rollouts, in the first quarter of 2023, we plan to introduce our new line of TEMPUR-breeze products in the U.S. along with a new line of adjustable basis with incremental consumer focused features and benefits. We had made substantial investments in 2021 and 2022 to prepare for these launches, and we’re looking forward to bringing these new consumer solutions to market.
Turning to the final highlight. In the first half of 2022, the incremental 10 plants, [diluted] [ph] 100% of manufacturing byproducts from landfills. We continue to be on-track to achieve our goal of zero landfill waste at our wholly-owned Tempur and Sealy manufacturing operators worldwide by the end of the year.
Our focus remains on delivering shareholder value through the execution of our long-term strategies by investing in our brands, products, people, and capacity. We also continue to allocate capital to share repurchase as part of our commitment to returning capital to shareholders. We’ve repurchased over 8% of our shares outstanding year to date. We plan to repurchase at least 10% in 2022.
Our key initiatives, which have driven growth from a $500 million company at the time of our IPO, to a $5 billion company today are the underpinning of our confidence and our ability to continue to extend our leading position in the global bedding market. These key initiatives include: first, develop the highest quality bedding product in all the markets we serve; second, promote worldwide brands with compelling marketing; third, optimize our powerful omnichannel distribution platform; and fourth, drive increased EPS through operation execution and by prudently deploying capital.
These initiatives have shaped the building blocks to our next stage of growth, which we’re laying the [groundwork] [ph] today. In the U.S. we’re investing in new products, compelling brand advertising, expanding channel diversification. In our international operations, we’re investing in the 2023 launch of our all new Tempur products in Europe and Asia to increase our international total addressable market.
Our operations are also in investment focus this year as we execute on four key priorities: complete the transition to our new ERP system; two, stand-up third U.S. foam flooring plant; three, strengthen our supply chain worldwide; and four, increase safety stock of imported products, key components and inputs with long lead times.
With that, I’ll turn the call over to Bhaskar.
Bhaskar Rao
Thank you, Scott. I would like to highlight a few items. Consolidated sales increased 4% to $1.2 billion. Adjusted earnings per share was $0.58 and we repurchased over 4 million shares in the quarter. At the end of the second quarter, we successfully implemented a new round of pricing [actions] [ph]. This follows previous rounds of pricing, all of which were designed to fully offset the headwinds from rising input costs.
Our pricing actions are dilutive to gross margins as sales increased with no meaningful change in gross profit. Since 2019, this dynamic has accounted for 400 basis points of headwind to consolidated gross margin. We believe that designing price increases to cover the dollar impact of inflation is both beneficial for near and long-term retailer advocacy and end consumer demand.
We expect certain input costs may ease beginning in the back half of the year. If this release were to come to pass, we anticipate the unfavorable margin dynamic that we have experienced over the past couple of years will reverse providing a tailwind in 2023. As Scott mentioned, we are leveraging our industry leading balance sheet and cash flow attributes to invest in the business, laying the groundwork for future growth.
We have made investments to diversify our supplier base to fully support our customers while managing through a fragile global supply chain and a tight labor market. We invested an incremental $10 million in our operations in the second quarter to maintain our high standard of product quality and customer service.
We anticipate these incremental investments to continue to a lesser degree in the second half of the year. For 2023, we are set up to drive efficiencies as the global supply chain infrastructure stabilizes, and our new ERP system drive synergies. We have adjusted [$17 million] [ph] of charges during the quarter, all of which are permissible adjustments under the terms of our senior credit facility. $9 million of those adjustments were related to the transition of our new ERP system, which as Scott had noted was completed in the second quarter.
In addition, we had $4 million of organizational restructuring costs and $3 million of operational startup costs relating to expanding our capacity. We expect there may be a similar amount of adjustments related to these items later this year, primarily from further investments in our new foam-pouring facility in Crawfordsville, Indiana.
Now, turning to North American results. Net sales decreased 5% in the second quarter. On a reported basis, both wholesale and direct channels decreased 5%. North American adjusted gross profit margin declined to 38.7%. This decline was driven by operational investments to service our customers and pricing benefit to sales with no gross profit. These factors were partially offset by favorable mix as Stearns & Foster performed well in the quarter.
North American second quarter adjusted operating margin declined to 16.5%. This was driven by the decline in gross margin and advertising investments in Stearns & Foster ahead of the planned fourth quarter launch.
Now, turning to international. Net sales increased 59% on a reported basis, primarily driven by the acquisition of Dreams. On a constant currency basis, international sales increased 68% as we experienced $10 million of headwind this quarter from unfavorable foreign exchange rates.
Read more here:
July 28, 2022
Tempur Sealy International Inc.’s (TPX) CEO Scott Thompson on Q2 2022 Results – Earnings Call Transcript
Jul. 27, 2022 10:37 AM ET
Company Participants
Aubrey Moore – Investor Relations
Scott Thompson – Chairman, President and Chief Executive Officer
Bhaskar Rao – Executive Vice President and Chief Financial Officer
Scott Thompson
Thank you, Aubrey. Good morning everyone and thank you for joining us on our 2022 second quarter earnings call. I’ll begin with some commentary on the second quarter, then spend some time discussing how we’re continuing to drive our long-term growth initiatives in the current very fluid operating environment. Then Bhaskar will review our second quarter financial performance in more detail and discuss our updated 2022 guidance, which has been revised to reflect the changes in the market. Finally, I’ll share a few closing remarks regarding how our business model would operate in a recessionary environment, and then we’ll open it up for Q&A.
In the second quarter of 2022, net sales were 1.2 billion and adjusted EPS was $0.58, both slightly below our expectations, primarily due to the U.S. market and a 30 million sales backlog on U.S. Sealy as we brought our new ERP system online. We made significant progress in this backlog and expect to return to normalized lead times by the end of the third quarter.
The second quarter was also impacted by three additional factors: first, whereas flare ups of COVID variances internationally, particularly in our Southeast Asia markets; second, commodity inflation impacting our cost ahead of the timing of our price increases, which went into effect at the end of June and will benefit future quarters; and third, operational investments to secure our supply chain, to retain flavor in order to maintain product quality and customer service.
Our international operation performed in-line with our expectations even as we faced challenges. In North America, the overall operating environment deteriorated during the quarter as the forward outlook for the economy and our sector diminished for all the reasons that have been well reported.
We believe that the overall U.S. mattress industry, our largest market, had its toughest volume decline in 15 years with units down 20% to 25% this quarter compared to last year. This environment again gave us a chance to demonstrate the resilience of our business model as we generated profit, invested in our business, returned capital to our shareholders, and outperformed the market.
The team continues to focus on execution. First, we continue to work on expanding our leading position in domestic U.S. bedding industry. The last few years, our growth initiatives and industry leading products have driven a meaningful outperformance relative to the market. We continue to drive market outperformance with our focused delivery best-in-class product quality and customer service.
Second, we completed our multi-year journey of transitioning more than 50 of our global subsidiaries and using five different ERP systems to using one common system. This investment in consolidating our operations is expected to drive long-term efficiencies across our global operations, enhance cyber security, facilitate customer communications regarding order status and improve our direct-to-consumer capabilities.
We now are truly one company as this completes the merger of Sealy and Tempur. I personally want to thank all of the employees who worked on this critical project. Great job. Third, Stearns & Foster performed very well relative to the market in the second quarter and is currently our fastest growing brand in the domestic market. Additionally, we launched the Stearns & Foster e-commerce website this quarter, although still very small, and is performing ahead of our expectations and ahead of where we were at this time when we launched our successful online [cocooned] [ph] by Sealy.
Consumer research has identified that there is an unmet market need or high-end traditional industry leading products and our Stearns & Foster e-commerce channel is designed to provide additional opportunities to serve this demand. Our approach is similar to our direct Tempur strategy and that we drive meaningful brand awareness to the benefit Stearns & Foster sales across all distribution channels, growing ASP, driving advertising dollars, and profits for all of our partners.
We’ll launch our all new collection of Stearns & Foster mattresses in the fourth quarter. The new Stearns & Foster lines designed to further distinguish our high-end traditional innerspring brand with superior technology, clear product step-up stories, and new contemporary look.
Fourth, in addition to Stearns & Foster launch, the other new product launches in our pipeline continue to be on-track and on-plan, furthering our objective to bring industry leading innovation to market. In the second quarter, we completed the rollout of our new premium Sealy products, which offer improved comfort and support technology. We also launched our new Sealy Natural Collection, which was thoughtfully designed with our commitment to sustainability environmental preservation [mark] [ph].
In the fourth quarter, we expect to launch a Sealy mattress with a best-in-class pressure-relieving gel grid layer at a consumer appealing mid-market price point. This product is designed to target a relatively small category of consumers looking for a non-traditional mattress feel.
In 2023, we expect to begin to roll-out our lineup of all new Tempur mattresses, pillows, and bed bases across both Europe and Asia. This new product line that features exciting customer centered innovation, allows better channel, and customer differentiation and at a wider price point. Retailer’s reaction to this new product and price points today has given us confidence that this updated product strategy will enable us to significantly increase our total international addressable market.
In addition to Asia and Europe rollouts, in the first quarter of 2023, we plan to introduce our new line of TEMPUR-breeze products in the U.S. along with a new line of adjustable basis with incremental consumer focused features and benefits. We had made substantial investments in 2021 and 2022 to prepare for these launches, and we’re looking forward to bringing these new consumer solutions to market.
Turning to the final highlight. In the first half of 2022, the incremental 10 plants, [diluted] [ph] 100% of manufacturing byproducts from landfills. We continue to be on-track to achieve our goal of zero landfill waste at our wholly-owned Tempur and Sealy manufacturing operators worldwide by the end of the year.
Our focus remains on delivering shareholder value through the execution of our long-term strategies by investing in our brands, products, people, and capacity. We also continue to allocate capital to share repurchase as part of our commitment to returning capital to shareholders. We’ve repurchased over 8% of our shares outstanding year to date. We plan to repurchase at least 10% in 2022.
Our key initiatives, which have driven growth from a $500 million company at the time of our IPO, to a $5 billion company today are the underpinning of our confidence and our ability to continue to extend our leading position in the global bedding market. These key initiatives include: first, develop the highest quality bedding product in all the markets we serve; second, promote worldwide brands with compelling marketing; third, optimize our powerful omnichannel distribution platform; and fourth, drive increased EPS through operation execution and by prudently deploying capital.
These initiatives have shaped the building blocks to our next stage of growth, which we’re laying the [groundwork] [ph] today. In the U.S. we’re investing in new products, compelling brand advertising, expanding channel diversification. In our international operations, we’re investing in the 2023 launch of our all new Tempur products in Europe and Asia to increase our international total addressable market.
Our operations are also in investment focus this year as we execute on four key priorities: complete the transition to our new ERP system; two, stand-up third U.S. foam flooring plant; three, strengthen our supply chain worldwide; and four, increase safety stock of imported products, key components and inputs with long lead times.
With that, I’ll turn the call over to Bhaskar.
Bhaskar Rao
Thank you, Scott. I would like to highlight a few items. Consolidated sales increased 4% to $1.2 billion. Adjusted earnings per share was $0.58 and we repurchased over 4 million shares in the quarter. At the end of the second quarter, we successfully implemented a new round of pricing [actions] [ph]. This follows previous rounds of pricing, all of which were designed to fully offset the headwinds from rising input costs.
Our pricing actions are dilutive to gross margins as sales increased with no meaningful change in gross profit. Since 2019, this dynamic has accounted for 400 basis points of headwind to consolidated gross margin. We believe that designing price increases to cover the dollar impact of inflation is both beneficial for near and long-term retailer advocacy and end consumer demand.
We expect certain input costs may ease beginning in the back half of the year. If this release were to come to pass, we anticipate the unfavorable margin dynamic that we have experienced over the past couple of years will reverse providing a tailwind in 2023. As Scott mentioned, we are leveraging our industry leading balance sheet and cash flow attributes to invest in the business, laying the groundwork for future growth.
We have made investments to diversify our supplier base to fully support our customers while managing through a fragile global supply chain and a tight labor market. We invested an incremental $10 million in our operations in the second quarter to maintain our high standard of product quality and customer service.
We anticipate these incremental investments to continue to a lesser degree in the second half of the year. For 2023, we are set up to drive efficiencies as the global supply chain infrastructure stabilizes, and our new ERP system drive synergies. We have adjusted [$17 million] [ph] of charges during the quarter, all of which are permissible adjustments under the terms of our senior credit facility. $9 million of those adjustments were related to the transition of our new ERP system, which as Scott had noted was completed in the second quarter.
In addition, we had $4 million of organizational restructuring costs and $3 million of operational startup costs relating to expanding our capacity. We expect there may be a similar amount of adjustments related to these items later this year, primarily from further investments in our new foam-pouring facility in Crawfordsville, Indiana.
Now, turning to North American results. Net sales decreased 5% in the second quarter. On a reported basis, both wholesale and direct channels decreased 5%. North American adjusted gross profit margin declined to 38.7%. This decline was driven by operational investments to service our customers and pricing benefit to sales with no gross profit. These factors were partially offset by favorable mix as Stearns & Foster performed well in the quarter.
North American second quarter adjusted operating margin declined to 16.5%. This was driven by the decline in gross margin and advertising investments in Stearns & Foster ahead of the planned fourth quarter launch.
Now, turning to international. Net sales increased 59% on a reported basis, primarily driven by the acquisition of Dreams. On a constant currency basis, international sales increased 68% as we experienced $10 million of headwind this quarter from unfavorable foreign exchange rates.
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July 28, 2022
German chemicals giant BASF reports profits based on price hikes
DPA – Yesterday 4:09 AM
German chemical company BASF said on Wednesday that it managed to boost net income by 26.3% in the second quarter thanks to “significant price increases.”
Net income came in at €2.1 billion ($2.13 billion). The comparison was with the second quarter of 2021.
“Despite the continued high raw materials and energy prices, we again achieved strong earnings in the second quarter,” said board chairperson Martin Brudermüller.
Like many industries, BASF is nervously watching rising gas prices spurred by Russia’s decision to limit shipments to Europe, a ruse that the West says is payback for Western sanctions. Those sanctions were laid down because of Russia’s invasion of Ukraine.
Gas is critical not only to power BASF factories, but is also a key ingredient in some processes. But the company reported strong sales to all of its key clients, except for the car sector, which has been hit hard by pandemic-related supply problems.
BASF also reported a 16.3% increase in sales to €23 billion. Earnings before interest and taxes (EBIT) came in at €2.3 billion, which matched levels in the the second quarter of 2021.
Sales in the chemicals segment grew 27.2%, while sales in the materials segment rose 29.9%. Sales in the industrial solutions segment rose by 12.1% and sales in the surface technologies segment increased by 7.6%. Nutrition and care segment sales rose by 30.9%.
Looking ahead to fiscal 2022, BASF now expects sales in the range of €86 billion-€89 billion, compared to prior outlook of €74 billion-€77 billion. EBIT before special items is expected between €6.8 billion and €7.2 billion.
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