Lanxess Earnings: Sharp EBITDA Decline With Cost-Cutting Plan Ahead

No-moat Lanxess LXS reported second-quarter EBITDA of EUR 107 million, down 58% versus 2022. These results align with its earlier profit warning and updated Vara consensus, which was previously set at EUR 200 million. The decline in performance was primarily propelled by low utilization stemming from reduced volumes, coupled with unfavorable pricing effects and elevated idle costs. To address these challenges, the company has introduced an operational efficiency plan called Forward, aimed at trimming structural costs by EUR 150 million, with the full impact expected to be realized from 2025 onward. However, despite these efforts, the market’s response is muted, largely influenced by dim near-term expectations for the chemicals industry. This sentiment was evident as the shares traded intraday at negative 2%. Management reasserted their updated guidance for 2023 EBITDA to fall within the range of EUR 600 million to EUR 650 million. Following the company’s profit warning in June, we adjusted our projections for our fair value estimate to EUR 65. As it stands, the shares still appear undervalued.

All segments faced low demand from nearly all industries. The specialty additives segment saw a significant 72% decline in EBITDA compared with the previous year. This decrease was primarily due to weak demand originating from the construction and electronics sectors. The segment’s margin experienced a substantial drop from 17.5% to 6% as low utilization was exacerbated by deliberate inventory management measures. Likewise, the advanced intermediates segment suffered from lower selling prices and reduced demand from the construction and chemical industries. This resulted in a 69% reduction in EBITDA, with the EBITDA margin plummeting to 4.8% from 12.6% in 2022. The consumer protection segment’s EBITDA experienced a 9% decline, with the integration of the microbial control business into the portfolio offsetting the effects of declining prices and volumes.