BASF lifts outlook but flags waning pricing power later in 2022

By Ludwig Burger

FRANKFURT (Reuters) - BASF on Wednesday lifted its full-year revenue guidance as it passes on higher energy cost to customers, but warned of a slowdown around year-end as Russian gas supply falls further and interest rates rise.

The chemicals maker also said the effects of the war in Ukraine and any further measures to contain the spread of COVID-19 might still spoil the brightened outlook.

It forecast annual sales of 86 billion to 89 billion euros ($87-90 billion), up from a previous target range of 74 billion to 77 billion, the German group said.

Speaking on an analyst call, CEO Martin Brudermueller said he expected "a soft landing towards the year-end", with pricing power softening.

Reflecting the resilience of BASF's business for now, it said it was also targeting the upper end of a range of 6.8 billion to 7.2 billion euros for full-year adjusted earnings before interest and tax (EBIT), lifting the lower end of the range from 6.6 billion previously.

It posted EBIT of 7.8 billion euros last year.

But the war in Ukraine could trigger further unforeseen disruptions to raw materials supplies in Europe, which could be only be partially offset by higher capacity utilisation at sites elsewhere, it warned.

BASF shares were down 0.5% to 42.01 euros at 0937 GMT, underperforming a 0.5% gain in the STOXX Europe 600 Chemicals. Gas-intensive ammonia is one of a number of products that face output cuts in Europe, the company flagged.

On July 11, BASF said its operating income in the second quarter came in significantly above analyst expectations as it raised prices and benefited from a strong dollar.

But an expected decline in pricing power is now already prompting BASF to cut investments and rein in hiring.

BASF said it expects less than 4 billion euros in capital expenditure on plants and long-lasting assets this year, cutting a target of 4.6 billion but retaining its five-year investment budget.

"Central banks have started to raise interest rates. This will increasingly impact demand in the coming months and reduce growth in 2023," CEO Brudermueller said, adding the company was now thinking three times before putting new people on the payroll.

($1 = 0.9852 euros)

(Reporting by Ludwig Burger and Patricia Weiss; editing by Uttaresh.V and Jason Neely)