Croda International has slashed its annual earnings outlook following a weaker-than-expected performance as its customers continued to destock their inventories.
The speciality chemicals provider now anticipates reporting adjusted pre-tax profits of £300million to £320million this year, down from previous guidance of between £370million and £400million.
It is the second profit warning the FTES 100 firm has delivered this year after declaring in June that earnings would be weaker than the £440million forecast by analysts.
Forecast: Speciality chemicals provider Croda International now anticipates reporting adjusted pre-tax profits of £300million to £320million this year
Trading has slowed significantly due to customers from the crop, industrial end and consumer care markets reducing their ingredient stockpiles.
Lower-than-expected sales volumes were noted in the group’s beauty care business over the summer, particularly from North America, where demand has failed to recover from the second quarter.
Although orders picked up in September and are predicted to continue growing for the rest of 2023, Croda said the division’s operating profit margin would decline in the second half of the year.
The Yorkshire-based company has also been battling weaker demand for its Covid-related chemicals amid an absence of pandemic-related restrictions.
Croda was a notable pandemic winner given its role in making lipid nanoparticles, which deliver genetic codes that instruct a body’s immune system to recognise a virus and are a crucial ingredient in the Moderna and Pfizer Covid-19 vaccines.
To try and uphold profitability, the firm has increased sales activity while imposing numerous cost-cutting measures, including plant shutdowns and shrinking shift patterns.
But it told investors there were no signs of a ‘significant rebound’ during the fourth quarter, so it has consequently trimmed its profit guidance.
Following the trading update, Croda International shares slid 4.4 per cent, or 210p, to £45.85 on Monday morning, making them the worst performer on the FTSE 100 Index.
They have slumped by around 30 per cent so far this year.
Russ Mould, investment director at AJ Bell, said: ‘A profit warning from Croda hints at the difficult global economic backdrop. Chemicals firms tend to be sensitive to fluctuations in GDP, and a combination of destocking and weak demand adds up to a toxic mix for the business.
‘Being diversified across different industries has not spared Croda from pain, and its relatively high level of fixed costs means lower volumes will result in a hit to margins.
‘This morning’s relatively measured share price response suggests Croda’s signal of a slight improvement in recent weeks is carrying weight with investors.’
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