SGL Carbon's 2024 Earnings: A Miss Amid Market Headwinds

SGL Carbon SE, a leading manufacturer of carbon-based products, recently reported its full-year 2024 earnings, and the results were less than stellar. The company missed expectations due to a combination of weak demand in key customer markets and significant restructuring costs. Let's dive into the details and explore what this means for investors.

The Earnings Miss: A Closer Look

SGL Carbon's earnings miss in 2024 can be attributed to several key factors. The primary culprit was weak demand in the semiconductor and automotive industries, which are crucial markets for the company. This demand slump led to a 4.8% decline in sales for the first nine months of 2024, compared to the same period in 2023. The adjusted EBITDA margin, however, improved slightly to 16.3%, thanks to positive product mix effects and cost-cutting measures.



The restructuring of the Carbon Fibers business unit also played a significant role in the earnings miss. The company reported impairment and restructuring costs of €91.2 million and €19.0 million, respectively. These costs, along with other one-off effects, resulted in an annual loss of €80.3 million, a stark contrast to the consolidated profit of €41.0 million in 2023.

The Impact of Restructuring

The restructuring of the Carbon Fibers business unit was a necessary but painful step for SGL Carbon. The unit has been struggling with low demand and high operating losses, particularly from the wind energy industry. The company aims to reduce the business activities of Carbon Fibers and focus on a profitable core, which includes closing unprofitable sites and developing individual solutions for all Carbon Fibers sites.

The expected long-term benefits of this restructuring include the reduction of operating losses and the associated impact on the entire SGL Carbon. The company aims to create clarity for its employees and quickly implement the restructuring to contain the operating losses of the Carbon Fibers business unit. The restructuring is expected to result in one-time cash effects of approximately €50 million over the next two years.

Market Outlook and Investor Implications

Looking ahead, SGL Carbon expects the market environment to remain challenging in 2025. The company forecasts adjusted EBITDA of €130 to €150 million, which is below the previous year's result of €162.9 million. Without the loss-making Carbon Fibers business, Group sales would be €200 million lower in 2025, and adjusted EBITDA would be between €155 and €175 million.

For investors, the key takeaway is that SGL Carbon is navigating a tough market environment and undergoing significant restructuring. While the short-term outlook is challenging, the long-term benefits of the restructuring could position the company for future growth. Investors should closely monitor the progress of the restructuring and the company's ability to adapt to changing market conditions.

Conclusion

SGL Carbon's 2024 earnings miss highlights the challenges faced by the company in a weak demand environment and the significant costs associated with restructuring. While the short-term outlook is uncertain, the long-term benefits of the restructuring could pave the way for future growth. Investors should stay informed and consider the potential risks and rewards as SGL Carbon navigates this challenging period.