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BASF shares tumble after chemicals giant slashes outlook

Key Points
  • Says now expects 30% profit fall, lower revenue.
  • Blames slowing economy, U.S.-China trade friction.
  • China output could fall further, analyst says.
An employee walks through the production facility of BASF-YPC Company in Nanjing, Jiangsu Province, China. The company is one of the largest Sino-Germany joint ventures in China that produces the basic ingredients that eventually have various applications in almost every product.
Qilai Shen | Corbis Historical | Getty Images

BASF shares fell almost 6% on Tuesday after an overnight profit warning in which the German chemicals giant citing trade friction forecast a 30% fall in adjusted annual operating profit instead of a rise.

The U-turn triggered ratings downgrades from Citibank, JP Morgan, Deutsche Bank and Jefferies and knocked shares in peers such as Covestro, Evonik, Lanxess and Wacker Chemie.

"Everybody expected a warning. But not to that extent. ...Really disastrous numbers," said one trader.

In May BASF had insisted it was still aiming for 2019 operating profit growth at the lower end of a 1-10% range, even as analysts predicted a decline.

Chief Executive Martin Brudermueller told shareholders at the time there were still forecasts for very slight growth in the automotive sector, for example.

On Monday, however, BASF said U.S.-China trade friction had dimmed the outlook: "The G20 summit at the end of June has shown that a rapid détente is not to be expected in the second half of 2019."

It warned that revenue for 2019 was likely to fall rather than rise as it had earlier forecast.

JP Morgan downgraded BASF to "neutral" from "overweight" in response. It said the magnitude of BASF's profit warnings within three months showed its extensive portfolio offered no obvious benefit.

The company makes petrochemicals, coatings, catalytic converters and foams.

Analysts at Evercore ISI said BASF's losses could prove worse than forecast citing weakness in China where the company sees its first-half output falling 13%.

That could dip to "to something closer to mid-to-high teens," Evercore ISI analysts said.

BASF is due to present detailed earnings for the second half of the year on July 25.

Its shares were down 5.7% at 0850 GMT at 59 euros. The stock is down almost 40% over the last 18 months.

German chemicals industry association VCI last week warned of falling revenue on slower economic growth, weakening industrial activity and uncertainty caused by global trade conflicts.