BASF posted an 11.2 percent rise in first-quarter operating profit on Thursday, thanks to rising oil prices and strong demand for its agrochemicals products.
The world's largest chemical company by sales said its earnings before interest and tax (EBIT) before special items came in at 2.35 billion euros ($3.75 billion), beating the average forecast of 2.2 billion euros in a Reuters poll of 14 analysts.
Unlike other chemicals makers, BASF also produces oil, so higher crude oil prices raise its profit in part of its business while increasing raw material costs at divisions that use oil-based products. BASF, which spent 7 billion euros in 2006 on acquisitions partly to reduce the cyclical nature of its earnings, said the strong start confirmed its positive outlook for 2008.
"Assuming that there are no changes to our portfolio, we aim to increase sales and improve income from operations before special items slightly in 2008," Chief Executive Juergen Hambrecht said in a statement. "We expect to grow faster than the chemical market each year, and we are confident of earning our cost of capital in any given year," Hambrecht said.
BASF competes with rivals such as Dow Chemical and Saudi Basic Industries Corp for a slice of the 2 trillion euro chemicals market. But analysts have said investments in chemicals are increasingly risky, partly because of an uncertain demand outlook, rising capacity in commodity chemicals, and the potential spread of the US economic slowdown.
BASF shares have fallen about 9 percent this year, underperforming a 4 percent decline in the pan-European DJ Stoxx chemicals index on worries over slowing economies. BASF shares trade at 11.5 times estimated 2008 profit, compared with the sector's 14 times.
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