ii view: sales boost extends Croda's recovery from multi-year low

Third-quarter trading update to 30 September

• Currency adjusted sales up 8% to £407 million

Guidance:

• Continues to expect full-year 2024 adjusted pre-tax profit of between £260 million and £280 million

Chief executive Steve Foots said:

“Whilst we are benefitting from more stable customer inventories and demand in key markets and geographies, the overall trading environment remains challenging. 

“We continue to focus on strengthening the Group through delivering our strategy combined with tight cost control and capital discipline."

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ii round-up:

Improved demand for fragrances, flavourings and agricultural related products helped speciality chemicals maker Croda International (LSE:CRDA) today detail increased sales.

Currency adjusted revenue for the third quarter to 30 September climbed 8% from the same period in 2023 to £407 million. The Yorkshire headquartered company also maintained a forecast for annual adjusted pre-tax profits of £260-280 million versus £309 million in 2023.   

Shares in the FTSE 100 group rose 5% in UK trading having come into this latest announcement down 29% year-to-date. That’s better than a 44% slump at rival Victrex (LSE:VCT) over that time, although in contrast to a 5% improvement for the FTSE 100 index in 2024. 

Croda makes ingredient chemicals for industries including beauty care product makers and life science drug and farming chemical manufacturers. 

Sales for Croda’s biggest division by sales, which makes items including fragrances and flavourings, climbed 7% on a currency adjusted basis to £228 million. That’s up from 6% growth at the half-year results. 

Life Science related sales, including agricultural products such as crop protection chemicals, rose 6% year-over-year to £129 million. Such sales at the half-year results, excluding Covid vaccine related ingredient sales to pharma giant Pfizer Inc (NYSE:PFE), had fallen 2% year-over-year. 

Industrial speciality related sales improved 16% from a year ago to £50 million, a sharp improvement from a 14% decline at the interim results. 

The US dollar and the euro account for almost two-thirds of group-wide sales, with the company expecting a £14 million negative impact on full year pre-tax profit converting those currencies back in sterling.

Annual results to 31 December are scheduled for 25 February. 

ii view:

Began in 1925, Croda today employs over 5,500 people. The Consumer Care division accounted for its biggest slug of revenues during 2023 at 52%, followed by Life Sciences at 36%, and Industrial Specialities after a previous part business sale, at 12%. Geographically, Europe, the Middle East and Africa generated 41% of 2023 revenues, Asia 25%, North America 23%, and Latin America 11%.  

For investors, the influence of the pandemic continues to wash through – ingredient demand for Pfizer’s Covid vaccine has fallen, while stock supplies accumulated during the pandemic, and previously used at the expense of new sales across industries such as beauty care, have largely expired. Accompanying management comment flags still ‘challenged’ trading, while costs for businesses generally remain elevated. 

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On the upside, signs of improved customer demand are evident. Diversity in both business type and geographical region exists. Management actions including focusing on costs have been taken, while a record of more than 20 years of consecutive annual dividend increases should not be overlooked.

For now, some caution looks sensible given the still uncertain global economic outlook and still nascent share price recovery. But exposure to expected areas of growth such as life science drugs, plus a consensus analyst estimate of fair value above £45 per share, suggests the company is one to watch longer term.

Positives: 

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

Negatives:

• Uncertain economic outlook
• Subject to currency movements

The average rating of stock market analysts:

Strong hold