Croda cuts profit forecast as customers focus on reducing inventory

Croda International has cut its annual profit outlook following a weaker-than-expected performance as its customers continued to destock.

The specialty chemicals provider now expects to report adjusted pre-tax profit of between £300 million and £320 million this year, down from its previous forecast of between £370 million and £400 million.

It is the second profit warning the FTES 100 company has issued this year, after it said in June that profits would be weaker than the £440 million forecast by analysts.

Forecast: Specialty chemicals supplier Croda International now expects an adjusted pre-tax profit of between £300m and £320m this year

Trade has slowed significantly as crop, industrial and consumer care customers have reduced their inventory of ingredients.

The group’s beauty care business saw lower-than-expected sales volumes over the summer, particularly in North America, where demand has not recovered since the second quarter.

Although orders increased in September and are expected to continue growing for the rest of 2023, Croda said the division’s operating profit margin will decline in the second half of the year.

The Yorkshire-based company also struggled with weaker demand for its Covid-related chemicals in the absence of pandemic-related restrictions.

Croda was a notable winner of the pandemic due to its role in producing lipid nanoparticles. These provide genetic codes that instruct the body’s immune system to recognize a virus and are a crucial part of Moderna and Pfizer’s Covid-19 vaccines.

To maintain profitability, the company has increased sales activity while implementing numerous cost-cutting measures, including plant closures and shorter shift schedules.

However, the company told investors that there were no signs of a “significant recovery” in the fourth quarter and therefore cut its profit forecast.

Following the trading update, Croda International shares fell 4.4 per cent, or 210p, to £45.85 on Monday morning, making it the worst performer in the FTSE 100 index.

They have fallen by around 30 percent so far this year.

Russ Mold, investment director at AJ Bell, said: “A profit warning from Croda points to the difficult global economic environment.” Chemical companies are typically sensitive to fluctuations in GDP, and a combination of destocking and weak demand creates a toxic mix for that Company.

“Diversification across different industries has not protected Croda from pain and relatively high fixed costs mean lower volumes will lead to a decline in margins.”

“The relatively muted share price reaction this morning suggests that Croda’s signal of modest improvement in recent weeks is resonating with investors.”