Croda’s first quarter sales grew by 1% to $431mn before currency movements. Consumer Care grew 4%, more than offsetting declines in other divisions, all of which were up against strong comparisons.
The group sees no material effect so far from the conflict in the Middle East and is increasing prices to fully recover input cost inflation.
Despite the increased uncertainty, full-year guidance for organic sales growth of 3-6% is unchanged.
The shares were up 1.6% in early trading.
Our view
Croda was up against some tough comparatives in the first quarter, but in the face of geopolitical unrest, sales remained resilient. Confirmation of this year’s sales guidance was enough to give the recent recovery in sentiment some extra momentum.
Detail on strategic progress was thin on the ground, but the transformation remains ‘on track’ and we’re supportive of the focus on efficiency and simplification.
Croda develops and supplies ingredients for industrial applications, the life sciences, and consumer care brands. It’s a relatively small player in the chemicals sector, so we support the renewed focus on innovative niche products in attractive markets.
Its nimbleness at bringing products to market, combined with a broad manufacturing footprint, facilitate R&D based relationships with local & regional (L&R) customers. These consume more specialised end products, which can enjoy higher growth rates, and strong pricing power, which will be essential if Croda can honour its pledge to recover all cost inflation stemming from the conflict in the Middle East
Global trade policy remains a risk to monitor, but another problem the regional focus can help mitigate. In the US, for example, 70% of sales are manufactured locally. Croda’s pivot towards emerging markets should also lower the direct exposure to tariffs, as well as provide further growth opportunities.
Looking ahead, Croda’s well exposed to some attractive growth drivers. It’s well known for providing delivery systems for mRNA-based medicines such as Pfizer’s COVID 19 vaccine. Regulatory headwinds in the US have caused some uncertainty for the pharmaceutical industry. But we remain positive on the long-term outlook for drug development, which is a key demand driver for Croda’s products in this space.
In consumer care, growing demand for more sustainable cosmetics, flavours and fragrances plays well to Croda’s strengths. Its efforts to adjust to consumer preferences are bearing fruit, but we still see this division as sensitive to economic conditions.
Robust cashflows and reasonable debt levels are other attractions, which should help support the 3.7% yield. But there are no guarantees.
The market has begun to recognise Croda’s strategic progress and the recovery in many of its end markets. We think 2026 guidance looks achievable and, further out, we do see some potential upside to Croda’s medium-term goals. However near-term upside looks largely dependent on a sustained improvement in sentiment. Against a challenging macroeconomic backdrop, catalysts may be harder to come by, increasing downside risk and implying higher volatility for investors.
Environmental, social and governance (ESG) risk
Chemical companies trend between medium and high risk in terms of ESG. The primary risks facing the sector include carbon emissions from operations, the environmental and social impact of its products, waste management and human capital.
Sustainalytics rates Croda’s management of ESG risks as strong. While it seeks to meet Environmental Management System standards, not all of its plants are certified. Ambitious science-based emissions reduction targets have been set, and progress is positive, but the approach could be improved by a published climate transition plan. On waste, there are robust emergency response plans and recycling programs. The company is seen as a fair and supportive employer with a good approach to health and safety. However, there’s still work to do in terms of long-term talent development in this knowledge-intensive industry.
Croda key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.