German chemicals company Covestro tightens 2019 outlook

Net income of German chemicals producer Covestro plummeted by 70.4 percent year-on-year to a total of 147 million euros (163 million U.S. dollars) in the third quarter of 2019, the company announced on Monday.

Earnings before interest, tax, depreciation and amortization (EBITDA) declined by more than half due to “negative price effects” and stood at 425 million euros between July and September, according to Covestro.

Despite an increase in sales volume for Covestro’s core products, such as polyurethanes and polycarbonates, group sales decreased by 14.6 percent to 3.2 billion euros. This decline would be due to “continued lower selling prices,” Covestro stated.

Free operating cash flow declined by 58 percent to 243 million euros because of “reduced cash flows from operating activities as well as scheduled investments.”

“The economic climate remains challenging, which we notice particularly in the automotive sector,” said Markus Steilemann, chief executive officer of Covestro.

Covestro narrowed its business guidance for 2019 “within the published ranges” and expects volume growth in its core business to be in the “low-single-digit percentage range.”

EBITDA for the fiscal year was forecast by Covestro to be between 1.57 billion and 1.65 billion euros. Back in 2018, the company’s EBITDA was 3.2 billion euros.

“We remain confident we will reach the targets we have set for the fiscal year,” noted Thomas Toepfer, chief financial officer of Covestro, adding that “margins were unusually high in the prior-year quarter, which is why the year-on-year decline in sales and earnings is in line with our expectations.”

On Monday, U.S. investment bank Goldman Sachs left its rating for Covestro at “Buy” with a price target of 53 euros. Shares of Covestro stood at slightly above 47 euros on Monday midday.

It should be no surprise for investors that Covestro has slightly lowered its target corridor for the year as a whole, said Goldman Sachs analyst Georgina Iwamoto, adding that she was confident about the volume growth at Covestro in the third quarter. (one euro currently equals to 1.11 U.S. dollars)