Croda cuts full-year profit outlook

9th Oct 2023 07:25

(Sharecast News) - Specialty chemicals company Croda cut its full-year profit outlook on Monday following a weaker-than-expected third-quarter performance.

In an update for the period from 1 July to 30 September, Croda said customers have continued to cut their ingredient inventories in consumer care, crop and industrial end markets, due to destocking and a weaker demand environment.

"This has continued to depress sales volumes and our overall performance for the period was therefore weaker than originally anticipated," it said.

In consumer care, sales volumes in the beauty care business were lower than expected in July and August, Croda said, with North America not recovering from the second quarter.

In the life sciences segment, meanwhile, sales weakened further in crop protection and improvement is now expected to be seen in the first half of next year.

Croda said the industrial specialties business continues to be hit by weak industrial demand globally and is not expected to be profitable in the second half of the year.

As a result, and "with no indications of a significant rebound to come in the fourth quarter", it now expects full-year 2023 group adjusted pre-tax profit of between £300m and £320m, down from previous guidance of £370m to £400m.

"Several cost measures have been implemented since June this year to protect profitability," the company said.

"Actions include tighter budgetary control of fixed costs and optimising production through plant shutdowns and reduced shift patterns, at the same time as increasing sales activity to meet ongoing customer demand for innovation.

"We are also seeking efficiency savings from simplifying business processes and ways of working. Croda remains well positioned to rebound when the macro environment improves."

At 0920 BST, the shares were down 4.4% at 4,584p.

Russ Mould, investment director at AJ Bell, said: "A profit warning from Croda hints at the difficult global economic backdrop. Chemicals firms tend to be sensitive to fluctuations in GDP and a combination of destocking and weak demand adds up to a toxic mix for the business.

"Being diversified across different industries has not spared Croda from pain and its relatively high level of fixed costs means lower volumes will result in a hit to margins.

"This morning's relatively measured share price response suggests Croda's signal of a slight improvement in recent weeks is carrying weight with investors."