Higher Oil Prices Take Bite Out of Bayer Profit
Bayer posted a 9 percent drop in fourth-quarter profit as oil-derived raw materials costs soared at its plastics division. Bayer’s MaterialScience unit, the world’s top maker of foam chemicals and transparent plastics used in everything from car lights to sport goggles, reported a 64 percent drop in adjusted earnings during the last quarter.
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Meanwhile, rival BASF, with whom Bayer competes in insulation foam chemicals and pesticides, surprised investors with a bullish outlook last week. Unlike its competitor, Bayer is reliant on polycarbonates, an industry that has seen margins squeezed as new plants come on line, driven by Saudi Kayan Petrochemical’s expansion.
Both the polycarbonates and foam chemicals markets were growing at a health 4-6 percent pace last year, according to Bayer CFO Werner Baumann, it just “takes a while until a temporary imbalance is absorbed by market demand.” Baumann said the company would likely raise prices to counter higher raw materials costs driven by rising oil prices.
Baumann added that, “In some markets and regions, we’re quite happy with the progress we are making. It’s a mixed picture.” Bayer expects earnings at the plastics division to recover markedly in the present quarter, though Baumann has no expectation that profits will meet last year’s level. Bayer expects a slight increase in adjusted group EBITDA (earnings before interest, taxes, depreciation, and amortization) this year, with a sales increase of about 3 percent.
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