INSIGHT: Wall Street kicks off new year with 2025 earnings cuts for chemicals

NEW YORK (ICIS)–On Wall Street, hope springs eternal at the beginning of a new year, and especially for sectors that have underperformed in the past year. But for chemicals, analysts are kicking off the year with cuts to their 2025 profit forecasts as a recovery in housing, automotive and consumer durables appears to be further off in the horizon.

At least the bar is set low.

In terms of stock market performance, in a year when the benchmark S&P 500 returned 25%, the S&P Materials Index was one of the worst sector performers, falling around 2%. Chemicals certainly played their part, with most companies underperforming the Materials Index.

H.B. Fuller’s 2 January preannouncement of disappointing fiscal Q4 (ended November) results citing weaker-than-expected conditions in consumer product goods, packaging-related end markets and durable goods sparked a series of earnings estimate cuts across the chemicals group.

JEFFERIES CITES WEAKNESS IN KEY END MARKETS
Jefferies slashed 2025 and 2026 profit forecasts for Huntsman on a likely delay in the durable goods upcycle until 2026-2027.

Jefferies analyst Laurence Alexander lowered estimates on Celanese again (after its initial shock preannouncement on Q4 results on 4 November), cutting his 2025 earnings per share (EPS) forecast by 8% to $8.70 and 2026 EPS by 3% to $10.45, along with reducing his Q4 2024 EPS estimate by 4% to $1.20.

“We are lowering estimates again to reflect, primarily, choppy order patterns flagged by peers for packaging and durable goods this winter, as well as a more muted recovery cycle in construction and automotive end-markets in H2 2025-2026,” said Alexander in a research note.

The analyst also cut his 2025 EPS estimate on Eastman by 11% to $8.60 and his 2026 forecast by 5% to $10.50.

“We are trimming estimates to better reflect likely incremental headwinds from cyclical end-markets over the next few quarters, as well as modest adverse foreign currency [impact],” said Alexander.

“The cyclical recovery we had baked into 2025 and 2026 appears likely to be both delayed at least a couple of quarters and less robust, at least initially,” he added, citing chemical peer comments on weakness in durables, electronics and transportation markets, coupled with choppy trends in construction.

MIZUHO CUTS ESTIMATES, AVOIDS BASIC CHEMICALS
Mizuho analyst John Roberts modestly cut 2025 earnings estimates by 1-6% on a wide range of chemicals, coatings and packaging companies, including Sherwin-Williams, PPG, Axalta, FMC, Corteva, Entegris, Element Solutions and Berry Global.

“The March 2025 quarter appears set to begin as weak as the December 2024 quarter ended for most stocks. We reduce estimates and price targets for several stocks (no increases), and see no catalyst yet to change our relatively defensive positioning,” said Roberts in a research note.

Downstream customers may have modestly rebuilt inventories early in in Q4 2024 in advance of potential new or increased tariffs, which could slow demand in 2025, the analyst pointed out.

“Unfavorable currencies are the latest headwinds to earnings, as most of our companies derive 50%+ of sales ex-US,” he added.

A stronger US dollar makes exports less competitive, and sales and earnings abroad are translated back into fewer dollars.

Roberts characterizes Mizuho’s top picks in the sector as “relatively defensive”. They are specialties producer DuPont in advance of splitting into three companies, industrial gases producer Linde, and coatings company PPG.

He is not recommending any asset-heavy, upstream basic chemical stocks, with the exception of Westlake.

“Global operating rates are low for almost all basic chemicals since the consumer-spending switch to services. Destocking appears over, but with demand remaining near trough, expansions in recent years in China and the US have left markets oversupplied,” said Roberts.

“China continues to expand to improve self-sufficiency, and shift refinery output to chemicals as gasoline demand is expected to peak early from China’s accelerated adoption of EVs,” he added.

While new China capacity additions slowed in 2024, a consequence of fewer projects starting construction early in the pandemic, they are poised to ramp back up in 2025-2027, he pointed out.

UBS SEES MORE UNCERTAINTY FOR EUROPE CHEMICALS
For European chemical companies, UBS Europe chemicals analyst Geoff Haire sees more uncertainty in 2025 versus 2024.

“We expect the primary focus for 2025 in the chemicals sector will once again be on the prospects for volume recovery, but investors will also need to focus on geopolitics (US, Germany and France) and the outcome of several conflicts around the world,” said Haire in a research note.

“With global GDP growth expected to be slower in 2025 and 2026 versus 2024, particularly in the US and China, we see limited prospect of a significant year on year volume recovery in 2025,” he added.

With resulting continued pressure on prices and margins, companies will likely react with further cost savings initiatives or portfolio reshaping, the analyst pointed out.

Even with the challenging backdrop, UBS sees 2025 gains in earnings before interest, tax, depreciation and amortization (EBITDA) to the tune of around 8% for European diversified chemical companies, and 9% for specialties.

Insight article by Joseph Chang

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