Chemical company BASF SE said Thursday second-quarter profit rose 27 percent, led higher by growing returns from its energy exploration and production division. The company confirmed its outlook for this year, but warned rising inflation and energy prices mean a tougher road ahead.
The Ludwigshafen-based company, which makes everything from fertilizers and paints to glues and cosmetic ingredients, said its net profit in the April-June period rose to 1.3 billion euros ($2 billion) compared with 1 billion euros a year ago.
Sales were up 11 percent to 16.3 billion euros ($25.4 billion) from 14.7 billion euros last year.
For the first six months, the company said its net profit was up nearly 20 percent to nearly 2.5 billion euros ($3.9 billion) from 2.05 billion euros last year while sales rose 10 percent to 32.2 billion euros ($50.2 billion) compared with 29.3 billion euros.
"Demand for our products remains strong, and the summer lull does not seem to be very pronounced. Having said that, the road ahead is stonier and steeper, and the competition is tougher," Chief Executive Juergen Hambrecht said of the results.
But he warned that the extremely "high raw material and oil prices" as well as the strong euro and a downswing in the U.S. would prove to be an influence in the coming months.
"Stock market volatility is unnerving investors, rising inflation worldwide and higher energy prices are reducing consumers' real purchasing power," he said. "That means that the environment in which our industry operates is becoming more challenging. Nevertheless, we remain confident because we have kept ourselves fit in the past years and we will continue to keep in shape."
BASF was bolstered by the rising prices for energy which benefited its Wintershall unit, which explores for, produces and trades natural gas and oil.
The company said its second-quarter sales in the oil and gas sector were up 41 percent to 3.2 billion euros ($5 billion) from 2.3 billion euros a year ago because of higher natural gas production, higher volumes in natural gas trading, and higher oil prices. Its pretax profit for the division rose 44 percent to 1 billion euros ($1.6 billion) from 712 million euros a year ago.
Demand for the company's herbicide, pesticide and other agricultural products were also supported by farmers growing more grain for food and biofuels.
That, in turn, helped push BASF's agricultural solutions business sales up 21 percent in the second quarter to 1.2 billion euros ($1.9 billion) from 957 million euros a year ago and post a pretax profit of 363 million euros ($566.3 million), up 51 percent.
The chemicals segment's sales rose 18 percent in the quarter to 2.9 billion euros ($4.52 billion) from 2.4 billion euros a year ago, but pretax profit fell 34 percent to 378 million euros ($589.7 million) from 573 million euros last year because of higher costs, especially for petroleum products.
The company said sales grew in all regions and only fell in North America in euro terms.
BASF said despite high and volatile raw material prices and the weak U.S. dollar, the company expects global chemical production to grow at 2.4 percent in the current year. BASF has increased its forecast for the average price of Brent crude to $120 per barrel in 2008 and expects an average exchange rate of $1.55 per euro. The company said other risks to growth included negative global economic influences as well as the aggravation of geopolitical tensions.
Earlier this month, BASF revised the year's growth outlook for chemicals to 2.4 percent from 2.8 percent blaming the strong euro and rising oil costs.
BASF said at the time, it expects to achieve earnings before interest, taxes, depreciation and amortization margin of 18 percent for the next five years. The calculation — a gauge of profitability — is based on oil leveling out to $100 a barrel and an exchange rate of $1.40 to $1.50 to the euro.
Shares of BASF slipped 1.1 percent to 40.69 euros ($63.42) in Frankfurt.
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