ii view: FTSE 100's Croda crashes to three-year low

This blue-chip company's share price fell by just over a third in 2022 and has continued to fall in 2023. We assess prospects. 

Trading update for 5 months to 31 May

ii round-up:

Speciality chemicals maker Croda International (LSE:CRDA) today issued a profit warning, as a combination of lower sales volumes and continued customer destocking impacted business. 

Pre-tax profit to the end of the year is now expected to come in at between £370 million and £400 million. That’s down from £780 million in 2022. Pre-tax profit for the first five months of 2023 stands at £143 million.   

Croda shares fell by more than 12% in UK trading having come into this latest news down 9% year-to-date. Shares for smaller rival Elementis (LSE:ELM) are down by a similar amount, while latex glove giant Synthomer (LSE:SYNT) has fallen by just over a third. The FTSE 100 index is about flat year-to-date. 

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Croda previously sold most of its Performance Technologies and Industrial Chemicals businesses, leaving it focused on the hoped-for higher growth areas of Consumer Care and drug ingredients or Life Sciences. 

Despite Consumer Care volumes having risen from the final quarter of 2022, they remain down by a double-digit percentage compared to the same first five months of 2022 because of further customer destocking - using up existing supplies before buying new ones. Product price rises and favourable currency movements had helped counter headwinds, but profit margins remain similar to the second half of 2022 given reduced volumes. 

Demand for both Life Sciences and Crop Protection products had started the year well, but rapid customer destocking is now hitting hard - an event management previously estimated would be more second half. Life Science profit margins had been hindered by lower sales of Covid-19 related drug ingredients, although second half sales are still expected to run to plan.  

First-half results to the end of June are scheduled for 25 July. 

ii view:

Founded in 1925, Croda today employs over 5,500 people. Headquartered in Snaith East Yorkshire, operating profit during 2022 was split almost evenly between Consumer Care and Life Sciences with its remaining Industrial Specialties business generating around 15%. 

Consumer Care products include chemicals for personal and home care products, along with fragrances. Life science chemicals assist both pharma companies such as Pfizer with its Covid-19 vaccine and crop protection and seed care product companies. 

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For investors, the influence of the pandemic in fuelling customer demand is likely now unwinding as stock supplies are used at the expense of new sales. The tough economic backdrop in hindering consumer demand cannot be forgotten, elevated costs for businesses generally persist, while the broader issue of chemicals and their impact on the environment also warrants consideration.   

On the upside, Croda enjoys diversity in both business type and geography. Product price rises to help counter increased costs have been made, bolt-on acquisitions for both Life Sciences and Consumer Care have been executed, while a record of more than 20 years of consecutive annual dividend increases cannot be overlooked. 

For now, and while exposure to expected areas of growth such as life science persists, current volatile customer demand is likely to leave many investors awaiting evidence of more stable conditions before taking any action.

Positives: 

• A diverse product and customer base
• A progressive dividend policy 

Negatives:

• Uncertain economic outlook
• Environmental concerns

The average rating of stock market analysts:

Strong hold