Investing.com -- Shares of Covestro AG (ETR:1COV) traded higher on Tuesday after reporting its third-quarter 2024 earnings largely in line with analyst expectations, delivering an EBITDA of €287 million, a 4% year-over-year increase and close to the Visible Alpha consensus forecast of €289 million.
Revenues, however, landed slightly below projections, with sales of €3,603 million—a 1% rise year-over-year but 3% shy of the consensus estimate of €3,695 million.
The shortfall primarily reflects a 4% decrease in prices, alongside a 1% negative foreign exchange impact, which was partially offset by a 6% increase in sales volumes.
The company cited a major squeeze in its price-to-raw-material margin, posting a negative delta of €126 million compared to a positive €69 million in 3Q23, driven by a €150 million drop in prices.
By quarter's end, Covestro’s net financial debt stood at €2,788 million, including a €256 million pension deficit, representing a leverage ratio of 2.7x last twelve months’ EBITDA.
Free cash flow in the third quarter came in at €112 million, down from €308 million in the same period last year, with a modest working capital inflow and lower capital expenditures contributing to this result.
The Performance Materials segment posted an EBITDA of €125 million, a notable 47% improvement year-over-year but still falling 14% short of consensus expectations, which had been set at €146 million.
Analysts at UBS noted that Covestro’s pricing challenges and a minor FX headwind were partially mitigated by a 9% rise in volumes, boosted by the ramp-up of production facilities at the Dormagen and Krefeld sites in Germany.
In the Solutions & Specialties segment, EBITDA was €208 million, a 15% year-over-year decline but 6% ahead of consensus estimates.
Price declines of 5% over the period, versus an expected 3%, were somewhat balanced by a 2% increase in volumes.
Industry trends impacted end markets differently: while volumes in the auto sector (accounting for 17% of 2023 sales) saw a "low single-digit" decline, construction volumes grew by "low teen digits," and furniture/wood volumes increased by a "mid-single-digit" percentage.
Covestro revised its full-year 2024 guidance, narrowing its EBITDA forecast to between €1.0 billion and €1.25 billion from the prior range of €1.0 billion to €1.4 billion.
The midpoint of this revised range, €1.125 billion, is slightly below the consensus estimate of €1.154 billion, with UBS analysts anticipating that ongoing pricing pressures and raw material dynamics might keep earnings constrained.
“Consequently, we expect FY24 EBITDA consensus to shift a bit lower, too. Current Vara consensus is €1.15bn, while JPMe of €1.09bn is 5% below consensus,” said analysts at J.P. Morgan in a note.
For the fourth quarter of 2024, Covestro has set an implied EBITDA guidance range of €120 million to €370 million, with a midpoint of €245 million, which is 7% below the consensus of €263 million.
Despite this tightening of expectations, free cash flow guidance for the full year remains unchanged, expected to fall within a range of minus €100 million to plus €100 million. Consensus estimates for free cash flow are currently at €59 million, according to UBS.
Analysts at UBS anticipate a limited share price reaction given that investor focus is likely to remain on the progress of the ADNOC takeover.
Covestro’s valuation assessment, combining a discounted cash flow (DCF) approach with earnings multiples, yields a fundamental fair value of €41 per share, averaging to an overall valuation of €52 per share when factoring in a possible offer price from ADNOC of €62 per share.