Novozymes Earnings: EBIT Down 9%; 2023 Organic Sales Growth Outlook Narrowed

Wide-moat Novozymes NZYM B reported second-quarter EBIT of DKK 1 billion, down 9% versus 2022 and 6% below the company-compiled consensus. Across all segments, except for bioenergy, organic sales growth fell below the expectations laid out in the company-compiled consensus. The company’s less robust performance in the first half prompted Novozymes to revise its 2023 guidance for organic growth, now projecting a range of 4%-6% (previously 4%-7%), primarily because of destocking and lower consumer demand. Despite this adjustment, the EBIT margin was maintained at the level of 25% to 26%, driven by pricing. Our expectations are still in line; consequently, we maintain our fair value estimate of DKK 395. At current levels, the shares look undervalued.

Within the segments, organic sales growth was 0% for household care, negative 3% for food, beverages, and human health, 26% for bioenergy, negative 14% for grain and tech processing, and 7% for agriculture, animal health, and nutrition. Given the results, the outlook for the year is expected to be different from earlier indications.

A more robust performance is now foreseen in the bioenergy sector, with expectations revised to the midteens (formerly high single digits). Conversely, a more subdued outlook has been outlined for food, beverages, and human health because of destocking and reduced consumer demand, with growth now in the low single digits (previously high-single-digit growth). Changes in textile demand and destocking within the food-related grain exposure segment have also influenced the projections for health and grain and tech processing, with negative growth in the low single digits (previously positive low to mid-single digits). Importantly, both business domains are still set to witness stronger growth acceleration during the latter half of the year compared with the initial half.

Interim dividend payout is expected to be around 50% of net profit, with the payout date set for Oct. 17.