We’ve delivered all our principal promises: Covestro CEO
Covestro has beaten on third-quarter earnings expectations, delivering adjusted earnings before interest, taxes, depreciation of 574 million euros ($624 million) against consensus estimates of 506 million euros.
The materials science group also beat on net income, achieving 259 million euros against a consensus estimate of 206 million euros.
Third-quarter sales were mostly in line, coming in at 3.0 billion euros, against a Reuters’ poll estimate of 3.02 billion euros.
The company spun out from German pharmaceutical company Bayer in September 2015 has also raised its full-year forecast slightly, saying it expects return on capital employed (ROCE) to be significantly above the prior year’s figure and that it continues to anticipate a mid-to high-single-digit jump in core volume growth.
Speaking on CNBC on Tuesday, Chief Executive Patrick Thomas said he was very pleased with the overall sales result but also what he described as very strong core volume growth. He also emphasized the group had achieved what it had set out to do since last year’s separation from Bayer.
“We’ve roughly doubled our share price in our first year of operation. We’ve delivered all our principal promises. We saw a very strong first nine months and that’s what’s led us to give a stronger outlook,” he said.
The EBITDA outlook has been pushed up to around 1.9 billion euros from an earlier guidance of at least 1.78 billion euros.
China’s growth came in the strongest of Covestro’s various geographies in the third quarter but the 25 percent rate achieved must be taken in the context of particularly weak year ago comparables given the destocking underway in China during the same period of 2015.
Further afield, Asia-Pacific delivered a 15 percent growth rate while North America increased at 6 percent. Regional strength in automotive and electrical were the focus, with China’s leadership in the former category a highlight.
According to Thomas, “China is now one of the fastest producers of growing e-mobility and these fully electrical vehicles are growing at 120 – 125 percentage points per year.”
The weakest link was Europe, driven by softness in automotive and electrical but offset by strength in non-residential construction and furniture.
The volatile pricing environment for raw materials has moved in Covestro’s favor recently with Thomas explaining that growing cost benefits have overridden pricing weakness seen earlier in 2016.
“Raw materials prices have been dropping and are now at a low level, so the margin expansion to some extent has come from relatively stable pricing but reducing raw material costs,” he said.
Difficulties in manufacturing operations at some competitors have helped Covestro, although according to Reuters, the company has also underperformed on output targets due to issues of its own with one supplier, said by UBS analysts to be Ineos.
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