Global trade conflicts weigh down on BASF earnings

LUDWIGSHAFEN, Germany—BASF S.E. has reported a fall in second quarter sales and earnings (EBITDA), due in part to global trade conflicts and a slowdown in industrial growth.

Group sales stood at $16.9 billion during the three months to end of June, down 4 percent compared to the same period in 2018, the German chemicals giant said in a July 25 statement.

Earnings plunged 27 percent year-over-year to $2.23 billion, impacted by lower volumes and margins in the chemicals and materials segments.

"In total, the two segments accounted for 83 percent of the overall earnings decline in the second quarter of 2019," Chief Financial Officer Hans-Ulrich Engel said.

Second quarter revenue for the materials segment fell 16 percent to $3.3 billion during the period, while the chemicals unit registered a 22 percent drop in sales at $2.43 billion.

"There is currently high uncertainty, low visibility and poor predictability," Martin Brudermueller, chairman of the Board of executive directors of BASF, said during a conference call.

BASF cited global trade conflicts, particularly between the U.S. and China, as a serious concern for the company.

"We followed the general assessment that a solution would be found by the middle of the year. But now it seems the situation will not ease for some time," said Brudermueller.

BASF revised down its 2019 outlook in an July 8 ad-hoc release citing a slowdown in industrial and chemical growth globally.

The Ludwigshafen-based company now anticipates a slight decline in revenue and a 30 percent fall in EBIT for the year.

"The automotive industry—an important customer industry for BASF—will not recover this year. We now expect a global decline of minus 4.5 percent over the full year," said Brudermueller.

Customers, Brudermueller said, in all industries are "very cautious" with projections and ordering, therefore lowering visibility on demand development.

In July, BASF unveiled plans to cut 6,000 jobs, a move it said will save $334 million annually by 2021. At BASF in Ludwigshafen, more than 1,100 employees accepted an offer and signed termination agreements in the first half of the year, Brudermueller said.

BASF also is preparing for the possibility of extreme weather events occurring more frequently in the future, working on a concept that considers lower water levels for the Rhine. The plan involves various measures in two important areas of activity: a reduction in water supply and logistics.