Nexen Q3 figures below consensus

Nexen’s third quarter figures have underperformed market expectations. According to Deutsche Bank research published 1 November, Nexen’s operating profit results were 13 per cent below consensus expectations.

The fact that sales revenues dipped 3 per cent despite an 8 per cent year-on-year increase in sales volume due to pricing pressure (Deutsche Bank report that average selling price fell 9 per cent year-on-year in the period) and a decline in winter tyre sales.

Looking at the numbers from a quarter-on-quarter perspective, sales volumes were flat but revenue slid 3 per cent. The analysts put this mainly down to appreciation of KRW against USD and pricing pressure in the US market (where overall average selling price was down 2.4 per cent quarter on quarter). Average dealer incentive at 2.8 per cent of revenue remained at an elevated level although it was flat quarter on quarter.

However, on a more positive note OEM sales revenues rose 47 per cent year-on-year while replacement sales revenue was down 10 per cent. The downside is that this is said to have contributed towards mix deterioration.

Nevertheless UHP tyre sales were up 8 per cent year-on-year and the portion of UHP tyre revenue was 39.5 per cent versus 36.5 per cent in second quarter 2013 and 35.2 per cent in third quarter 2013.

In addition the analysts report that Nexen’s second Korean plant broke even in the second quarter of 2013 with and operating profit margin of 5.6 per cent having increased to 9.2 per cent due to better utilization. Therefore the overall outlook is that the analysts expect Nexen’s overall operating profit margin to improve slightly in the fourth quarter due to lower raw material input costs.