BASF 2024 Earnings: EPS Misses Expectations

BASF, the world's largest chemical producer, has released its preliminary financial results for the full year 2024, and the numbers are a mixed bag for investors. While the company's EBITDA before special items met analyst expectations, its earnings per share (EPS) fell short, raising concerns about the company's financial health and future prospects. Let's dive into the details and see what this means for income-seeking investors.



EBITDA Meets Expectations, But EPS Falls Short

BASF's EBITDA before special items for 2024 reached €7.9 billion, in line with analyst estimates but slightly below the company's own forecast of €8.0 billion. This figure represents a modest increase from the previous year's €7.7 billion, driven by higher earnings in the core businesses, particularly in the Chemicals, Materials, Industrial Solutions, and Nutrition & Care segments. However, the earnings momentum in the Chemicals segment declined considerably in the fourth quarter, only slightly exceeding the low EBITDA before special items of the fourth quarter of 2023.

The Agricultural Solutions segment, on the other hand, showed a significant increase in its contribution to EBITDA before special items in the final quarter compared with the same period of the previous year. This segment's performance was a bright spot in an otherwise challenging year for BASF.

EPS Misses Expectations

Despite the stable EBITDA, BASF's EPS for 2024 is expected to be €2.0 billion, which is below the analyst consensus for 2024 (Vara: €3.2 billion) and below the previous year’s figure (2023: €2.2 billion). The primary reasons for this decline are non-cash-effective impairments, primarily on battery materials in the Surface Technologies segment, as well as restructuring costs in all segments. These factors led to a total of special items in EBIT amounting to minus €1.9 billion in 2024.

Free Cash Flow: A Silver Lining

One positive note in BASF's 2024 earnings report is the company's free cash flow, which is expected to be €0.7 billion. This figure is considerably above analyst consensus (€0.4 billion) and above the range forecast by BASF (€0.1 billion to €0.6 billion). This strong free cash flow performance is a result of lower-than-expected payments for property, plant, and equipment, and intangible assets.

What Does This Mean for Income-Seeking Investors?

For income-seeking investors, BASF's 2024 earnings report presents a mixed picture. On the one hand, the company's strong free cash flow and stable EBITDA are encouraging signs. On the other hand, the decline in EPS and the significant special items in EBIT are cause for concern.

Investors should keep an eye on BASF's restructuring efforts and the company's ability to manage its impairments. If BASF can successfully navigate these challenges, it could position itself for stronger earnings growth in the future. However, investors should also be prepared for potential volatility in the company's earnings and cash flow in the near term.

Red Flags to Watch

1. Impairments and Restructuring Costs: BASF's significant impairments and restructuring costs are a red flag for investors. These costs could continue to weigh on the company's earnings in the near term, and investors should monitor BASF's progress in managing these challenges.
2. Currency Effects: BASF's sales were negatively impacted by currency effects in 2024. Investors should keep an eye on the company's exposure to foreign exchange risks and how it manages these risks in the future.
3. Segment Performance: While BASF's core businesses showed strong performance, the Chemicals segment's decline in the fourth quarter is a concern. Investors should monitor the performance of this segment closely in the coming quarters.

Alternatives if Rates Rise

If interest rates continue to rise, investors may want to consider alternative income-generating investments. High-yield dividend stocks, REITs, and utilities are all potential options for investors seeking stable income in a rising-rate environment. However, investors should also be aware of the risks associated with these investments, such as interest rate sensitivity and dividend cuts.

Conclusion

BASF's 2024 earnings report presents a mixed picture for income-seeking investors. While the company's strong free cash flow and stable EBITDA are encouraging signs, the decline in EPS and significant special items in EBIT are cause for concern. Investors should keep an eye on BASF's restructuring efforts and the company's ability to manage its impairments. If BASF can successfully navigate these challenges, it could position itself for stronger earnings growth in the future. However, investors should also be prepared for potential volatility in the company's earnings and cash flow in the near term.