BUSINESS
Chemical Company Earnings Fall Moderately In First Quarter Of 1996 • Earnings fell 11% on average for 30 major chemical firms, and chemical earnings dropped at oil, gas firms George Peaff C&EN Northeast News Bureau mproving productivity can only go so far toward increasing sales and earnings. A lackluster economy coupled with weather-related operating difficulties cut into the sales and earnings of U.S. chemical producers in first-quarter 1996. Without demand and pricing strength, the significant sales and earnings growth achieved by chemical companies in 1995 have turned into slowing sales and earnings so far in 1996. Combined sales of 30 major chemical producers tracked by C&EN were $21.7 billion in first-quarter 1996, a 1% decline from the same period in 1995. Half the companies reported sales drops. Although the sales shortfall does not seem steep, Praxair's 44% and Witco's 14% sales growth skew the re-
I
sults. Praxair included newly acquired CBI Industries' sales and Witco included OSi Specialties' sales into their quarterly results. Without Praxair and Witco, the 28 remaining companies had a 3% decline in their combined sales for the quarter. Combined earnings were nearly $2 billion for the 30 companies, but represented an 11% decline from the same period in 1995. The average profit margin for the 30 companies was 9.2% in the first quarter, compared with 10.1% in last year's first quarter. Profit margins held up well in light of the emphasis on cost curtailment and
Ground rules for C&EN earnings analysis C&EN's quarterly report on financial performance of the U.S. chemical industry contains data from the 30 largest U.S. basic chemical companies and from 24 oil and diversified companies, each with more than $200 million in annual chemical sales. To be included in the table of 30 basic chemical producers, a company must have at least 50% of its sales in chemicals on an annual basis. That is
productivity programs instituted and maintained at many companies. But slackened chemical demand led to chemical price declines in this year's first quarter, in marked contrast to the rising demand and prices that the industry enjoyed in 1995. As reported by the Bureau of Labor Statistics, chemical prices in the first quarter declined 0.6% from the same period in 1995. Chemical prices in the first quarter of 1995 were 11.3% higher than in the same period in 1994. In the fourth quarter of 1995, chemical prices were 3.8% higher than in the same period in 1994. The manufacturers of commodity
why DuPont, for example, is included in the table featuring diversified manufacturers. In referring to chemical sales, C&EN means those chemicals whose molecular composition has been changed in the course of manufacture. Hence, chemical sales include those of traditional categories of basic petrochemicals and inorganics, organic intermediates and inorganic compounds, polymers such as plastics and fibers, and agricultural chemicals and specialty derivatives.
Chemical industry leaders for first-quarter 1996 Earnings8
Sales Rank 1996
1 2 3 4 5 6 7 8 9 10
$ Millions
Dow Chemical $4,982.0 1 Monsanto 2,304.0 2 Union Carbide 1,501.0 3 Eastman Chemical 1,261.0 5 Praxair 1,090.0 11 Air Products 1,013.0 8 Rohm and Haas 994.0 7 Arco Chemical 982.0 6 W.R.Grace 889.8 4 IMC Global 717.0 15
$476.0 Dow Chemical 260.0 Monsanto Union Carbide 157.0 Eastman Chemical 112.0 106.0 Arco Chemical 100.0 Rohm and Haas 94.0 Air Products Hercules 76.1 Praxair 70.0 66.2 International Flavors 66.2 Great Lakes Chemical
Note: Based on 30 chemical companies listed on page 2A. a After taxes. .
22
MAY 20,1996 C&EN
Profitability Earnings as Rank % of sales 1995
Rank $ Millions 1995
Rank 1995
1 2 3 4 5 6 8 9 13 10 11
International Flavors Hercules Great Lakes Chemical Loctite Monsanto Arco Chemical Union Carbide Rohm and Haas Nalco Chemical Betz Laboratories
17.3% 15.1 12.3 11.8 11.3 10.8 10.5 10.1 9.9 9.9
2 12 5 4 13 8 3 15 6 11
Chemical industry 1996 first-quarter results
• • • • •
Sales
Earnings
% change from year-earlier quarter
% change from year-earlier quarter 100
Sales declined 1% 25 Earnings dropped 11% Profitability remained high Production rose only 1% 15 Prices dropped slightly 10
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Note: All sales, earnings, and profit-margin data are based on 30 chemical companies on page 24.
chemical products, especially petrochemicals, suffered the largest sales and earnings declines in the quarter, Ethylene producers and makers of ethylene-based plastics and chemicals had an especially hard time in first-quarter 1996. Polyvinyl chloride (PVC) producers Georgia Gulf and Geon had sales declines of 34% and 27%, respectively, during the quarter. Georgia Gulf cited lower prices for PVC and methanol, and shutdowns caused by cold weather at its Plaquemine, La., plant for its sales decline and earnings drop. Geon says its "results reflect a combination of a decrease in PVC resin margins over raw materials to levels
below those seen in the last cyclical trough/' Geon posted a net loss of $5.6 million for the quarter, mainly because of operational problems at its LaPorte and Deer Park, Texas, plants. Arco Chemical's sales were $982 million for the first quarter, a 14% drop from the same period in 1995. Its earnings were $106 million, a 16% decline from the same 1995 period. "Our earnings reflect the significant drop in styrene prices and margins from the level they were a year ago/7 says Alan R. Hirsig, Arco's president and chief executive officer. Although both volumes and margins dropped for styrene and its derivatives in first-quarter 1996,
Arco reported higher margins—despite lower volumes—for propylene oxide based on higher derivative prices and lower costs for propylene, In the group of 30 chemical producers, Dow Chemical remained the largest in both sales and earnings at about $5.0 billion and $476 million, respectively. But its first-quarter 1996 sales fell 4% and its earnings fell 16% from first-quarter 1995. Praxair jumped to the fifth position in sales from 11th in the 1995 period, refleeting its merger with CBI Industries, IMC Global jumped to 10th in sales from 15th in the 1995 period, reflecting its merger with Vigoro. A number of the 30 major chemical MAY 20,1996 C&EN
23
BUSINESS
First-quarter sales, earnings declined for many of the 30 major chemical companies FIRST-QUARTER 1996 Earnings3
Sales
($ millions)
Change from 1995 Sales
Earnings
1995
9.3% 7.8 10.8 9.9 8.7
9.0°/ 4.7 11.0 10.5 9.6
94.0 21.2 106.0 19.7 42.9
3% -14 -14 12 2
164.8 304.5 4,982.0 1,261.0 242.2
9.5 22.6 476.0 112.0 19.0
-2 -2 -4 2 3
-28 2 -16 -15 -12
5.8 7.4 9.6 8.9 7.8
7.8 7.1 10.8 10.7 9.2
First Mississippi Freeport-McMoRan H. B. Fuller Geon Georgia Gulf
156.8 256.8 303.6 245.7 208.0
11.6 19.0 2.7 -5.6 15.8
-1 1 3 -27 -34
-37 414 -55 def -74
7.4 7.4 0.9 def 7.6
11.7 1.5 2.0 6.4 19.2
W.R. Grace Great Lakes Chemical Hercules IMC Global International Flavors
889.8 536.9 502.6 717.0 382.8
41.6 66.2 76.1 61.3 66.2
4 -6 -27 -2 2
18 -3 8 4 -5
4.7 12.3 15.1 8.5 17.3
4.1 12.0 10.2 8.1 18.7
Loctite Lubrizol Monsanto Nalco Chemical Petrolite
200.2 405.4 2,304.0 301.9 86.8
23.6 36.6 260.0 30.0 3.3
2 -2 -1 3 -6
-4 -10 14 -9 -35
11.8 9.0 11.3 9.9 3.8
12.5 9.8 9.9 11.2 5.5
Praxair Rohm and Haas Stepan Union Carbide Witco
1,090.0 994.0 130.6 1,501.0 589.4
70.0 100.0 5.6 157.0 25.6
44 1 -3 3 14
-7 4 -8 -32 5
6.4 10.1 4.3 10.5 4.3
9.9 9.7 4.5 15.8 4.7
$21,713.8
$1,989.5
-1%
-11%
Air Products Albemarle Arco Chemical Betz Laboratories Cabot Crompton & Knowles Cytec Industries Dow Chemical Eastman Chemical Ethyl
TOTAL
$ 1,013.0 270.2 982.0 199.5 491.3
$
7% 45 -16 5 -8
Profit margin" 1996
9.2%
10.1°/
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales, def = deficit.
companies suffered double-digit earnings drops in the first quarter, including Crompton & Knowles (28%), Eastman Chemical (15%), Ethyl (12%), First Mississippi (37%), H. B. Fuller (55%), Lubrizol (10%), Petrolite (35%), and Union Carbide (32%). Eastman Chemical reports that higher raw material costs, particularly those for p-xylene, propane, and natural gas, resulted in lower margins in the first quarter compared with a year earlier. Volume growth and price increases that Eastman initiated during the quarter were not sufficient to offset the higher raw material costs. Eastman's sales increased 2% in the quarter to $1.26 billion. Union Carbide says during the first 24
MAY 20,1996 C&EN
quarter, demand for ethylene glycol was reduced and prices for polyethylene were weak, despite steady polyethylene shipments during the quarter. At First Mississippi, although volumes and prices were higher for aniline and other intermediate chemicals, its earnings decline was tied to higher natural gas costs in its fertilizer operations. In addition, ammonia sales volume and prices were down, and volume for urea was flat, but prices were up. Lubrizol reports that weak demand for finished lubricants during the second half of 1995 continued into firstquarter 1996. "Weak product demand and increased competition make it unlikely that the company can achieve its
volume and market share growth objectives this year/' says W. G. Bares, Lubrizol's president and CEO. Although overall sales and earnings improved for the oil and gas companies in the first quarter, chemical sales and earnings declined sharply at most of them. Exxon, the largest chemical producer among the 13 oil and gas companies tracked by C&EN, posted a 14% gain in overall earnings on a 5% increase in sales. But its chemical sales for the quarter, at $3.15 billion, were down 6% from the 1995 period, and chemical earnings, at $287 million, were down 48%. "Despite record sales volumes, chemicals earnings were below last year primarily due to lower commodity chemical prices and margins," says Lee R. Raymond, Exxon's chairman. Exxon had prime chemical product sales of 3.67 million metric tons in first-quarter 1996, 10% above sales in the same period in 1995. "However, prices did stabilize and began to strengthen late in the period." Others with chemical sales drops included Chevron (15%), Kerr-McGee (10%), Lyondell (11%), Mobil (39%), Occidental (27%), and SheU Oil (10%). Chemical earnings declined 19% for Ashland, 61% for Chevron, 2% for Kerr-McGee, 75% for Lyondell, 60% for Mobil, 62% for Occidental, 20% for Phillips, 59% for SheU Oil, 65% for Sun Co., and 4% for Unocal. Lyondell Petrochemical says its firstquarter results were substantially below those reported in the same period in 1995 when market conditions for petrochemicals were much stronger. While sales volumes in first-quarter 1996 showed steady improvement as compared with the sharply declining markets of last-half 1995, "product price increases lagged rising feedstock costs," states Bob G. Gower, Lyondell's chairman and CEO. However, Lyondell believes demand will continue to be high and that prices will strengthen in the second quarter. Only Amoco increased its sales and earnings from its chemical segment. Sales were up 6% to $1.4 billion, and earnings were up 3% to $240 million. The company attributes the modest growth in both chemical sales and earnings to higher margins for p-xylene and purified terephthalic acid, which offset lower margins for olefins and polymers. The 11 diversified companies with significant chemical sales had a modest
Most diversified, oil and gas firms had higher earnings FIRST-QUARTER 1996 Sales
Earnings8
($ millions)
OIL AND GAS COMPANIE•s $ 8,213.0 Amoco 3,097.0 Ashland Chevron 10,336.0 Exxon 31,205.0 965.1 Fina Kerr-McGee Lyondell Petrochemical Mobil Occidental Petroleum Phillips Petroleum
$ 690.0 -2.0 616.0 1,885.0 38.0
Change from 1995
Profit margin13
Sales
Earnings
1996
9% 12 14 5 12
32% def 34 14 13
8.4% def 6.0 6.0 3.9
1995
6.9% def 5.1 5.6 3.9
454.8 1,165.0 18,694.0 2,522.0 3,602.0
47.9 24.0 736.0 164.0 210.0
1 -1 6 -7 15
30 -81 16 -8 89
10.5 2.1 3.9 6.5 5.8
8.1 10.8 3.6 6.6 3.6
6,369.0 2,545.0 2,278.0
385.0 -5.0 120.0
13 -2 16
27 def 122
6.0 def 5.3
5.4 def 2.8
$91,445.9
$4,908.9
7%
20%
5.4%
4.8%
DIVERSIFIED MANUFAC1"URERS $ 3,778.0 AlliedSignal 10,769.0 DuPont 774.7 Engelhard 348.2 Ferro Corp. 1,144.3 FMC
$ 225.0 899.0 32.6 13.2 55.2
11% 3 12 2 11
14% -6 18 1 5
6.0% 8.3 4.2 3.8 4.8
5.8% 9.1 4.0 3.8 5.1
604.5 572.6 998.4 789.4 1,748.8 308.5
22.5 50.7 107.7 45.0 172.3 20.1
2 8 8 3 0.5 5
$21,836.4
$1,643.3
5%
Shell Oil Sun Co. Unocal TOTAL
BF Goodrich Mallinckrodt Morton International Olin PPG Industries Vulcan Materials TOTAL
28 18 20 17 -12 26 -0.4%
3.7 8.9 10.8 5.7 9.9 6.5 7.5%
3.0 8.1 9.8 5.0 11.2 5.4 7.9%
a After-tax earnings from continuing operations, sxcluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales, def = deficit.
overall sales rise for the first quarter and a slight drop in earnings. But the largest chemical producer among them, DuPont, posted a 3% decline in chemical sales to $4.52 billion and a 13% drop in chemical earnings to $520 million. BF Goodrich's chemical sales in the first quarter were down 6% to $298 million, and earnings fell 25% to $23.4 million. However, Olin's chemical sales and earnings grew, based on several acquisitions. Its chemical sales were up 18%, to $415 million, and chemical earnings were up a whopping 94%, to $61.9 million. But despite the sluggishness of the first quarter, some chemical company executives are somewhat optimistic for the rest of 1996. "Demand for vinyl resins is recovering, and pricing for vinyl products is increasing from the very low levels of the first quarter/' says Jerry R. Satrum, president and CEO of Georgia Gulf. "However, the economy does not appear to be as robust as many people believe, and we are anticipating at least some continued weakness in certain areas," he adds. "[Commodity] chemicals and specialty [chemicals] continue to face a difficult business climate in most markets around the world," says John A. Krol, DuPont's president and CEO. "While indicators are somewhat mixed about near-term prospects for economic growth, we do expect to see a pickup in economic activity later this year, particularly in the U.S. and Europe." •
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