BRUSSELS?Franco-Belgian chemicals company Solvay SA reported a better-than-expected 2% rise in earnings for the first quarter, and said it had agreed to sell its stake in its unit in Argentina and Brazil as the firm shifts its focus to specialty chemicals.
The company said its key target measure?underlying recurring earnings before interest, tax debt and amortization?was ?602 million ($691 million), up from ?592 million a year earlier. That was better than the ?584 million expected by analysts. However, net income dropped 5% from the year-earlier period.
The company maintained its 2016 outlook for underlying Ebitda growth in the high single digits as a percentage?an expansion the company expects to be back-ended this year.
Solvay said its earnings continued to be affected in the first quarter by temporary destocking of inventories in the smart devices market, but that this impact was offset by growth in other Advanced Materials applications, such as health care.
Solvay's net sales fell 6% on the year to ?2.9 billion in the first quarter, with volumes stable but average prices and foreign-exchange factors had a negative impact on earnings.
The company's underlying net income fell to ?192 million in the first three months of 2016, from ?202 million a year earlier. Analysts had expected net income of ?179 million.
Solvay's net income and underlying Ebitda are adjusted to exclude nonrecurring items.
The firm's 2015 earnings data were all recalculated to include the impact of the purchase of U.S. counterpart Cytec Industries on sales, revenue and profit. Solvay closed that deal in December.
Jean-Pierre Clamadieu, Solvay chief executive, said that while volatility in the oil and gas sector continued to affect its results, "the smooth and swift integration of the former Cytec teams and businesses as part of Solvay puts us well on track to achieve our recently increased synergy targets."
"Our earnings grew against strong comparables in 2015, supported by a ninth straight quarter of solid pricing power which contributed to a record margin of 21%," he said.
Solvay also reported a small positive free cash flow for the first quarter, compared with a steep drop a year earlier. The company said it was on target to meet its goal of ?650 million free cash flow for the year, which would be a 30% increase on its 2015 level.
Solvay also announced Tuesday it was selling its 70.59% stake in Solvay Indupa, its unit in Argentina and Brazil, to Brazilian chemical company Unipar Carbocloro.
Solvay said the transaction is based on a total enterprise value of $202.2 million, subject to adjustments. The sale will need antitrust approval.
"Solvay's divestment of Indupa follows our announced early exit of our European PVC joint venture, as Solvay is transforming into a specialty chemicals group," said Vincent De Cuyper, a member of Solvay's executive committee.
The company, created in 1948, has 956 employees in two production sites in Brazil and Argentina.
Karim Hajjar, chief financial officer of the Solvay Group, said the sale of Indupa, which took several years, won't have a significant impact on earnings in the coming quarters. He said Solvay hopes to close the sale by year-end. Indupa is already classified by Solvay as an asset held for sale.
Mr. Hajjar said the agreed enterprise value for Indupa represents a five times Ebitda multiple for the unit based on a five-year historical average.
He said Solvay continues to look at assets to divest and further possible acquisitions.
"Our portfolio is being upgraded and the full story hasn't been written," he said in a conference call.
Write to Laurence Norman at email@example.com