Lanxess Earnings: EBITDA Down 50%; Lowers Guidance

No-moat Lanxess LXS reported third-quarter EBITDA of EUR 119 million, down 50% versus 2022, but 11% up versus the previous quarter and in line with Vara consensus. The decline was driven by lower volumes and pricing across all segments, mainly in its specialty additives business. The 2023 EBITDA guidance range was lowered to EUR 0.5 billion-EUR 0.55 billion from EUR 0.6 billion-EUR 0.65 billion. The outlook for Lanxess’ end markets remains weak with management expecting demand in the fourth quarter to be lower as the company continues to be hit by customer inventory management and supplier-related production limitations for the flavors and fragrances business. However, Lanxess intends to propose a reduction of the full-year 2023 dividend to EUR 0.10 and plans to save EUR 100 million this year through cost reductions and lower investments. Results are broadly in line with our view, so we don’t expect to make a material change to our EUR 65 fair value estimate. Shares are up 2% intraday and at current levels the shares look undervalued.

EBITDA for the specialty additives division experienced a significant 73% decline, mainly attributed to an 8% decrease in prices and 19% drop in volumes, driven by diminished demand in the construction, electronics, and automotive sectors. In contrast, demand from the aviation industry remained relatively stable.

Similarly, the advanced intermediate segment was heavily affected with EBITDA declining by 54% compared with the previous year. This decline was due to a 16% reduction in prices to account for lower input costs and a 19% decrease in volumes, primarily influenced by the sluggish construction market.

In the consumer protection sector, EBITDA also decreased by 24% with volumes and prices declining by 4% and 5%, respectively. These reductions were a result of decreased demand and destocking across consumer end markets.