Croda Earnings: There Was Slightly Better-Than-Expected EBIT Delivery in a Difficult Market

Narrow-moat Croda’s CRDA first-half results were affected by widespread customer destocking, with sales of GBP 881 million and EBIT of GBP 176 million being 6% and 33% lower, respectively, compared with the first-half pro forma results of last year, adjusted for the divestment of the majority of the performance technologies and industrial specialties business last year. This was largely expected, however, after the company issued a profit warning at the beginning of June. The EBIT delivery was even slightly ahead of FactSet consensus of GBP 174 million, which sent shares around 4% higher in early trading. Management reconfirmed 2023 full-year profit before tax guidance of GBP 370 million-GBP 400 million. This is in line with our GBP 397 million forecast, so we don’t expect to make a material change to our GBX 5,400 fair value estimate following today’s announcement. We view shares as fairly valued at current levels.

Pro forma volumes for the group were down by 18%, primarily driven by the industrial specialties and consumer care segments. The volume decline in the life sciences segment was more moderate, at negative 8.8%. Excluding COVID-19 lipid sales in 2022, sales were up by 8% for the segment, with resilient underlying performance in the pharma and seed enhancement subsegments.

The consumer care segment was affected by destocking across all subsegments except for flavor and fragrances, but still managed to deliver overall flat sales. This was due to a 10% contribution from price and mix (6% from price and 4% from product mix). Price and mix were especially strong at the higher end of the performance spectrum, in beauty actives, where Croda enjoys superior pricing power given its large sales of new, patented, or protected products.