Solvay Beats Q1 Consensus
Belgian chemicals group Solvay expects profit to recover in 2012 thanks to cost-cutting initiatives which helped offset weak markets for its plastics unit and beat consensus in the first quarter, it said on Monday.
Solvay has suffered as a struggling construction sector buys less of its PVC for use in drainage pipes and window frames while raw material prices have continued to rise.
However, it now expects an efficiency drive and the benefits of its €3.4 billion- ($4.44 billion) purchase of French specialty chemicals group Rhodia to help it reduce costs and give it an overall recurring core profit roughly in line with 2011.
That would make the full-year profit about €2.1 billion, not far off a tenth more than the 1.9 billion analysts had been expecting.
"People will look to the guidance, all the analysts will revise probably up the estimates, so it should have a positive impact on the share price tomorrow," said Bank Degroof analyst Bernard Hanssens.
Last month, incoming chief executive Jean-Pierre Clamadieu said the company would generate €400 million in cost-efficiencies by 2014, based on its 2010 cost base, as part of his plan to increase profits by half in four years.
The cuts come as Solvay suffers from rising costs of ethylene and electricity in its PVC division, while it expects operations that are most exposed to a downturn, like PVC, to continue to face difficult market conditions globally this year.
Those concerns are echoed across the chemicals sector, and last month Dutch peer AkzoNobel, the world's largest paints maker, warned on economic uncertainty and high raw materials prices.
Industry leader BASF also said its chemicals and plastics businesses had suffered from low volumes and pricey raw materials.
Solvay, which is also the world's largest maker of soda ash, an ingredient for glass, said its overall first-quarter recurring core profit was €523 million.
That is much better than the €441 million expected by five banks and brokerages polled by Reuters, but is 9% below the same period last year, when the group had a bumper quarter because of improved demand and price hikes.
