DSM Drops on Concern Supply Costs May Erode 2017 Profit Growth
(Bloomberg) -- Royal DSM NV dropped in Amsterdam trading on investor concern that 2017 profit growth at the world's largest maker of vitamins will be hurt by higher costs for raw materials.
The Dutch company could see an erosion of its profit margin as lower raw material prices “unwind,” Chief Financial Officer Geraldine Matchett said Thursday on a conference call about third-quarter earnings. DSM's margin of 18.6 percent at its plastics and chemicals division, which has partly been improved by cost-cutting, could lose 150 basis points due to higher prices for supplies, she said.
The shares fell 2.6 percent to 55.66 euros as of 12:23 p.m. local time, paring an earlier advance.
Cautionary comments for the fourth quarter on fading raw-material cost benefits and volatility in the Chinese infant nutrition market are “worth noting” for 2017, UBS AG analyst Andrew Stott wrote in a note.
The maker of Omega 3 fatty acids and high-performance plastics is tackling a cost base that was inflated by $3.2 billion in nutrition-product acquisitions now sitting alongside its chemicals businesses. With margins improving and markets recovering, Chief Executive Officer Feike Sijbesma said 2016 growth in earnings before interest, taxes, depreciation and amortization would be in the “mid-teens” compared with earlier expectations of profit growth in the low to mid-teens range.
Third-quarter Ebitda rose 13 percent to 323 million euros ($359 million), the Heerlen, Netherlands-based company said in a statement. That beat the 307 million euros average predicted by analysts surveyed by Bloomberg. Sales increased 3 percent to 2 billion euros.
DSM is on track with its cost-cutting program, and savings of 90 million euros to 100 million euros is expected by the end of the year, Matchett said on the call. A broader update on the program will be given at the end of 2016, she said.
To contact the reporter on this story: Andrew Noël in London at anoel@bloomberg.net. To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, John Bowker
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