RIYADH (Reuters) – Saudi Basic Industries Corp. 2010.SE (SABIC) missed fourth-quarter earnings forecasts on Saturday and said the U.S. mortgage crisis had hurt demand for chemicals, ending a run of record profits that began in 2006.
Higher input costs from a surge in oil prices to record highs also weighed on earnings at the world’s largest chemical-maker by market value, SABIC Chief Executive Officer Mohamed al-Mady told Reuters.
The company may have also taken a hit from the cost of financing its $11.6 billion acquisition of GE Plastics, analysts said. SABIC included a full quarter of GE Plastics earnings in its financials for first time in the three months to December 31.
SABIC, also the Gulf’s largest steel maker, said fourth-quarter profit rose 12.3 percent to 6.87 billion riyals ($1.83 billion). Analysts’ forecasts ranged from 8.38 billion riyals to 9.1 billion riyals, according to a Reuters survey.
SABIC has reported record profit in each of the five preceding quarters on surging global demand for its chemicals, steel and fertilizer.
“Right now there is a correction in demand,” Chief Executive Officer Mohamed al-Mady told Reuters.
“We noticed a drop in demand from the U.S. market mainly from the automotive and the construction sectors, which has weakened prices. The problem in the U.S. also affected consumer goods,” Mady said in a telephone interview.
Demand also faltered in Europe, though the downturn was not as sharp as in the United States, Mady said, declining to give details. SABIC did not published detail financial statements.
SABIC has been bracing for slowing growth in United States, but Mady said in December he expected India, China and the Middle East to offset the decline in the U.S. demand.
Expectations for SABIC’s fourth quarter earnings received a boost when affiliate Saudi Arabian Fertilisers Co 2020.SE (SAFCO) more than doubled fourth-quarter profit on higher output and prices. SABIC owns 42 percent of SAFCO.
“We were expecting strong growth because of the SAFCO results,” said Talal al-Tawari, head of the GCC equities division at Gulf Investment Corp.
“SABIC is the indicator for the whole Saudi market and if its results are disappointing to investors it will definitely have a negative impact,” he said.
Shares of SABIC rose 1.76 percent ahead of the results release after trading hours. The stock had surged more than 58 percent in the fourth-quarter, outperforming the index .SASI, whose 42.7 percent gain in the three-month period was the biggest in the Arab world.
SABIC’s earnings may have been affected by financing costs of its $11.6 billion acquisition of GE Plastics in August from General Electric Co, said Abdullah al-Rashoud, chief executive officer of KSB Capital Group in Riyadh. KSB had forecast a profit of 8.84 billion riyals.
SABIC came to market to fund the GE transaction as the global credit crisis triggered by defaults on U.S. subprime mortgages, or homeloans for people with a poor credit history, drove up borrowing costs.
High oil prices, which hit a record $100 a barrel in the fourth quarter squeezed SABIC’s margins. Mady said. Crude prices are used as a benchmark for the pricing of Naphta, used to produce petrochemicals, as well as of other feedstocks.
“The subprime crisis had an impact on our business, but we have to wait and see the full extent of the damage,” he said.
“SABIC is ready to cope with any reversal in growth cycle,” he added.
For 2007 SABIC made a net profit of 27 billion riyals an increase of 33 percent from 2006. Full-year earnings per share were 10.81 riyals versus 8.12 riyals by the end of 2006, it said in a statement.
SABIC’s board said it would propose giving investors one free share for every five they hold and a cash dividend of 2 riyals a share.