Lanxess Earnings: Weak Demand and Destocking Leads to Softer Outlook

No-moat Lanxess LXS reported first-quarter EBITDA of EUR 189 million, down 28% versus the prior-year period, but in line with Vara consensus. The decline was mainly due to a 14% drop in volumes as demand decreased in several end markets, particularly construction and electronics. Furthermore, many customers reduced their inventory levels. EBITDA guidance for 2023 was specified at EUR 850 million-EUR 950 million, essentially a reduction using the midpoint as previous guidance was for EBITDA to be in line with the 2022 level (EUR 930 million). Guidance is based on the company’s expectations for a pickup in the global economy in the second half of the year, particularly China. We are more skeptical on a near-term improvement in macroeconomic conditions. Hence, we don’t expect to make a material change to our below-consensus near-term estimates or our EUR 69 fair value estimate. At current levels, the shares look undervalued.

Consumer protection’s EBITDA rose 9% in the quarter, but this was mainly due to portfolio effects from the IFF Microbial acquisition. However, the segment displayed its resilience with volumes only down 2% despite being partially hit by supplier force majeures. Specialty additives’ EBITDA declined 28% due mainly to weaker demand from the construction and automotive industries. Advanced intermediate’s EBITDA fell nearly 50% on a 23% decline in volumes as demand declined from the construction and chemicals industries.