Brenntag shares fall as chemicals price pressures hit forecast

By Marta Frackowiak and Matteo Allievi

(Reuters) - Brenntag's shares dropped sharply on Tuesday after the German chemicals distributor lowered its annual earnings forecast and missed first-quarter estimates due to price pressures and lower-than-expected demand in some areas.

Chemicals firms have cut inventories over the past two years due to weak demand, but some are seeing tentative recovery signs as volumes slowly pick up in the U.S., Europe and China.

Brenntag said that higher volumes were not making up for lower prices, without giving exact figures.

"Finding the right price points at this moment is a little bit tricky as we have not been fully meeting the expectations in Q1," said CEO Christian Kohlpaintner in an analyst call.

But there were "encouraging signs" on price improvements, he said, especially in its warehouse business builders.

Brenntag's finance chief Kristin Neumann said that although demand was picking up in beauty, healthcare and nutrition, the material science sector was slightly slower.

Volume growth was coming from the EMEA and North America regions, while Latin America, which accounts for less than 10% of Brenntag's revenue, was its weakest market, while China was also still not fully back on track, Neumann told reporters.

Barclays analysts said in a note that price normalisation was steeper than expected in the quarter.

Kohlpaintner said in a call the company was seeing increased logistics costs and extended shipping times as a result of a spate of attacks on ships in the Red Sea, but no disruption.

Brenntag's shares were down 8.4% at 1432 GMT, their lowest level since November, after it said it expects 2024 operating earnings before interest, tax and amortisation (EBITA) to be at the lower end of a 1.23 billion to 1.43 billion euro range.

Analysts had forecast operating EBITA of 1.27 billion euros ($1.37 billion) in 2024 in a poll by Vara Research.

Brenntag's said its quarterly operating EBITA fell 24% year-on-year to 259.7 million euros, below the estimate of 279.4 million euros.

It expects the first half to be more challenging than the second, but was "cautiously optimistic" that market conditions will improve during 2024.

Operating EBITA fell by more than 20% in both of Brenntag's divisions, while first-quarter sales fell 12% to 4 billion euros from a year ago, also missing analyst estimates.

JP Morgan analysts said in a note that the lowered guidance implies a substantial earnings rebound in the rest of 2024, to around 320 million euros per quarter.

($1 = 0.9272 euros)

(Reporting by Marta Frąckowiak and Matteo Allievi in Gdansk; Editing by Alexander Smith)