24th Jun 2015 10:32
LONDON (Alliance News) - Specialty chemicals company Elementis PLC saw its shares take a beating on Wednesday after the company said its earnings per share will miss market expectations as its specialty products arm takes a hit from conditions in the oil and gas markets, weaker coating additives demand in China and local currency weakness in Latin America for its personal care arm.
FTSE 250-listed Elementis said that a slew of short-term issues it has faced in the second quarter of the year will mean its earnings per share for the full year will fall below market expectations, though it said it remains confident on its medium-term prospects and does expect operating profit for the year to meet its forecasts.
Still, the downgrade to its earnings per share expectations for the year caused its shares to sink Wednesday, down 16% to 261.50 pence late morning to be the worst performer in the FTSE 250 by some margin.
The group said its market share and contribution margins from its specialty products business have remained stable, with trading in the majority of its key markets in the first half set to be in line with its expectations. But it said "temporary market dynamics" it has seen in the second quarter are likely to negatively impact on the outcome of its full-year results.
Additives sales in North America in the second quarter are expected to be at least 30% lower year on year, the company said, owing to volume softness, due to the curtailing of drilling activity in the oil and gas market as companies in the sector delay and cancel projects in response to the lower world oil price.
The estimated sales drop is higher than Elementis had flagged in its first quarter trading update in April, when it said constant currency sales to oilfield customers had fallen 13% due to subdued drilling activity in the face of the oil price plunge.
"With the oil price having fallen on questionable global demand and US frackers having mothballed projects due to them being unprofitable, it is surprising to us that this comes as a surprise to Elementis, with declining US drilling activity well-known and already highlighted by the company as 13% lower in first quarter," said Mike van Dulken, the head of research at Accendo Markets.
Elementis also said coating additives sales, though solid in North America and Latin America, have fallen in China in the second quarter due to lower demand and, though its still expects full-year sales to rise year-on-year, Asia Pacific regional sales in the first half will be broadly flat. As a result, overall coatings additives sales for the first six months are expected to flat in the first half on a constant currency basis.
In its personal care arm, Elementis said its sales in Latin America have been hit by significant weakness in local currencies. This has resulted in the company deciding to stop supplying a number of applications where returns have become uneconomic. Sales for the business will, therefore, be broadly flat year-on-year, against strong comparatives, but will be higher on a constant currency basis.
In its Chromium arm, trading has been in line with its expectations, Elementis said.
By Sam Unsted; [email protected]; @SamUAtAlliance
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