BUSINESS
Chemical Earnings Average Down Yet Again in Second Quarter William J. Storck, C&EN Northeast News Bureau
chemical operations also declined substantially in the second quarter, Only pharmaceutical companies continued to show an increase, but it seems that they are impervious to the whims of the economy—as long as people get sick and researchers come up with improved and highvalue-added products. For chemical operations, other than pharmaceuticals, the economy continued to take its toll. Poor pricing, higher feedstock costs, lower demand, and a host of other bleak economic factors all played their part.
It's getting to be an old story. For the eighth straight quarter, chemical companies' earnings have declined from the previous year's comparable quarter. And although this year's first-quarter d r o p s h o w e d some moderation of that continuing decline, the second quarter worsened with an 18% decrease from the same period in 1990. Earnings for oil companies and diversified manufacturers that have
End-use markets continued weak in the second quarter. The automotive market, a huge outlet for plastics, fibers, and other chemical products, continued to be in the doldrums. Construction, likewise, is showing little sign of vitality overall. Residential construction seems to be picking up somewhat, but commercial construction continues to be depressed as a result of a widely reported nationwide glut of office space. The upshot is poor demand for chemical products and resulting low
Chemical industry leaders for the second quarter. Earnings*
Sales Rank 1991
1 2 3 4 5 6 7 8 9 10
Dow Chemical Monsanto Union Carbide W.R.Grace American Cyanamld Rohm & Haas Hercules Air Products Arco Chemical Ethyl
$ Millions
Rank 1990
$4794.0 2473.0 1751.0 1707.3 1420.0 752.9 734.0 713.4 703.0 638.1
1 2 3 4 5 7 6 8 9 12
Monsanto Dow Chemical American Cyanamld Union Carbide W. R. Grace Air Products Rohm & Haas Ethyl International Flavors I Great Lakes Chemical
Profitability
$ Millions
Rank 1990
$273.0 233.0 132.0 64.0 57.6 57.1 52.8 50.1 48.8 40.0
2 1 4 3 9 8 6 7 10 12
International Flavors LoctHe Great Lakes Chemical Betz Laboratories Monsanto Nalco Chemical IMC Fertilizer American Cyanamld Crompton & Knowies Air Products
Earnings as % of sales
Rank 1990
18.4% 13.4 11.5 11.3 11.0 9.9 9.7 9.3 9.0 8.0
1 5 4 7 8 6 15 13 12 14
Earnings as % of sales
Rank 1990
. . . and for the first six months of 1990 Sales Rank 1990
$ Millions
Rank 1990
Dow Chemical $9742.0 Monsanto 4696.0 Union Carbide 3608.0 W.R.Grace 3350.3 American Cyanamld 2732.8 Hercules 1502.0 Air Products 1468.1 Rohm & Haas 1432.6 Arco Chemical 1385.0 Quantum Chemical 1322.7
1 2 3 4 5 6 8 7 9 11
Dow Chemical $598.0 439.0 Monsanto 236.8 American Cyanamld Union Carbide 147.0 Air Products 119.1 103.0 Ethyl 95.9 International Flavors 94.1 Rohm & Haas W. R. Grace 88.4 85.0 Arco Chemical
1 2 4 3 6 7 9 5 10 8
Note: Based on 30 chemical companies listed on page 18. a After taxes.
16
Profitability
$ Millions
Rank 1991
1 2 3 4 5 6 7 8 9 10
Earnings"
August 12, 1991 C&EN
International Flavors Locttte Great Lakes Chemical Betz Laboratories Nalco Chemical Monsanto American Cyanamld Lubrlzol Crompton & Kno wies IMC Fertilizer Air Products
17.9% 14.0 11.8 11.2 10.3 9.3 8.7 8.5 8.4 8.1 8.1
1 4 3 6 5 7 10 9 13 17 15
Chemical industry 1991 second-quarter results Sales
Earnings
% change from year-earlier quarter
% change from year-earlier quarter
151
10
Sales rose just 2% Earnings dropped 18% Profitabilityfellto 6.0% Production declined 0.7% Prices increased 2.8%
-10 -20 -30 -40 1989
1990
1991
1989
1990
1991
Profit margins
Production
Prices
After-tax earnings as % of sales 8|
% change from year-earlier quarter
% change from year-earlier quarter
1989
1990
1991
1989
1990
1991
1989
1990
1991
Note: All sales, earnings, and profit data are based on 30 chemical companies listed on page 18.
capacity utilization, leading to lower prices. Government data show prices for chemicals and allied products rising almost 3% for the quarter. However, this includes drugs and other high-value-added products. On a quarter-to-quarter basis, the average producer price index was off 1.4% in the second quarter of this year for chemicals and allied products when compared with the average for this index during the first three months of 1991. More indicative of the fortunes of the chemical industry probably is the producer price index for industrial chemicals, which makes up a huge part of industry fortunes. On an an-
nual basis, the average index for the second quarter was up just 1.5% from the same period last year. But on a quarter-to-quarter basis, the secondquarter index was down almost 3% from the first quarter this year. One company citing the pricing situations was Dow Chemical. Dow said its overall prices were down 1% from last year's second quarter. However, when its consumer specialties segment was excluded, prices for the rest of the company declined 4%. And, when compared with the first quarter of this year, overall prices at the company fell 10%, and were down 13% when consumer specialties were excluded. Dow did, howev-
er, say that prices began to stabilize at the end of the second quarter. These lower prices—combined with a 6% increase in manufacturing costs in the second quarter, when compared with second-quarter 1990—reduced price margins, or the difference between the selling price and the cost to produce the commodity. For Dow, costs of hydrocarbon feedstocks and energy remained flat, but cost increases reflected lower operating rates and higher expenses because of scheduled plant maintenance. The company's operating rate fell to 81% from 89% during the second quarter last year. Falling capacity use is prevalent August 12, 1991 C&EN
17
Business
Sales rise 2 % , earnings fall 1 8 % for major chemical firms in second quarter SECOND-QUARTER 1991 Sales
Earnings*
($ millions)
Air Products American Cyanamid Arco Chemical Betz Laboratories Cabot
$
713.4 1,420.4 703.0 166.3 347.2
$
Change from 1990 Sales
57.1 131.8 33.0 18.8 6.4
0% 16 0 13 -12
Earnings
3% 22 -68 15 -59
FIRST-HALF 1991 ProfH margin"
Sales
Earnings*
1991
1990
8.0% 9.3 4.7 11.3 1.9
7.8% $ 1,468.1 2,732.2 8.8 1,385.0 14.5 329.7 11.1 758.0 4.0
$ 119.1 236.6 85.0 37.1 22.0
($ millions)
Change from 1990 Sales
3% 15 0 13 -5
Earnings
8% 15 -18 17 47
Crompton & Knowies Dow Chemical Ethyl First Mississippi Η. Β. Fuller
119.0 4,794.0 638.1 152.2 216.3
10.7 233.0 50.1 0.5 7.1
21 u 6 4 6
21 -36 -12 -31 10
9.0 4.9 7.9 0.4 3.3
9.0 7.6 9.5 0.5 3.2
225.2 9,742.0 1,290.0 283.4 418.4
18.9 598.0 103.0 2.4 10.8
17 0 7 8 8
20 -28 -6 14 61
Georgia Gulf B. F. Goodrich W. R. Grace Great Lakes Chemical Hercules
214.1 637.0 1,707.3 346.1 734.0
16.6 8.3 57.6 40.0 38.7
-2 1 5 35 -8
-50 -76 12 16 22
7.8 1.3 3.4 11.5 5.0
15.4 5.5 3.1 13.5 3.8
449.6 1,214.7 3,350.3 665.3 1,502.0
33.7 5.4 88.4 78.6 69.2
-4 -1 7 31 -4
-52 -89 5 14 8
IMC Fertilizer Imcera International Flavors LoctKe LubrlzoJ
302.6 453.2 266.1 141.0 370.1
29.3 34.0 48.8 18.8 27.6
-1 13 5 1 4
23 33 6 7 -17
9.7 7.5 18.4 13.4 7.5
7.7 6.4 18.1 12.6 9.3
588.7 862.8 535.8 279.4 742.4
47.9 61.2 95.9 39.1 62.9
0 11 8 2 4
18 41 10 17 1
Monsanto Morton International Nalco Chemical din PetroIHe
2,473.0 465.5 346.9 568.0 83.4
273.0 34.2 34.3 21.0 3.8
4 8 18 -14 16
11 12 4 -28 4
11.0 7.3 9.9 3.7 4.5
10.4 7.1 11.3 * 4.4 5.0
4,696.0 983.2 639.1 1,129.0 161.2
439.0 74.5 65.7 42.0 6.6
1 12 12 -13 12
0 7 5 -31 -9
582.5 752.9 104.6 1,751.0 421.3 $21,990.1
-40.3 52.8 2.7 64.0 16.0 $1328.1
1,322.7 1,432.6 206.9 3,608.0 819.6 $43,821.2
-20.8 94.1 5.1 147.0 32.8 $2701.4
Quantum Chemical Rohm & Haas Chemed Union Carbide Wttco TOTAL
-1 -2 8 -7 4 2%
def -25 -40 -45 -13 -18%
def 7.0 2.6 3.7 3.8 6.0%
1.2 9.1 4.7 6.2 4.6 7.5%
4 -2 8 -5 3 2%
def -24 -36 -30 -1 -12%
a After-tax earnings from continuing operations, excluding significant nonrecurring and extraordinary items, b After-tax earnings as a percentage of sales, def = deficit.
throughout the industry, brought on by a combination of weak de mand and new and upgraded pro duction capacity. The government's measure of capacity use for chemi cals and allied products in the sec ond quarter stood at an average 78.1%, off from 78.8% in the first quarter of 1991 and a drop of more than three percentage points from 81.6% in second-quarter 1990. A continuing high level of chemi cal product exports—especially plas tics—helps keep capacity use from going any lower. However, al though the volume of exports is up 18
August 12, 1991 C&EN
considerably, industry sources indi cate that in many cases, export pric es are quite low. In the second quarter, production, and thus capacity use, was hurt con siderably by inventory cutting in downstream markets, according to chemical producers. Downstream users of chemicals had built inven tories during the uncertainties in the Persian Gulf region. But as soon as these uncertainties were resolved, inventories were cut to reduce carry ing costs, cutting into plant opera tions and putting further pressure on chemical selling prices.
At Union Carbide, for instance, chairman Robert D. Kennedy said chemical margins continued under pressure as a result of the weak U.S. economy and customer inventory reductions following the end of the war in the Persian Gulf area. Kennedy also mentioned that feed stock costs, although generally de clining during the quarter, remain significantly higher than they were a year ago. The result of all of these pressures cut sharply into earnings for many chemical companies and chemical producers. Of the 30 chemical com-
from 7.5% in last year's second quarter for the same group of compa 12-MONTH RUNNING DATA FIRST-HAI_F 1990 nies. Change from 1990 Profit margln Profit m argln The 18% decline in 1990 1991 Sales Earnings 1990 1991 chemical company earn ings scotched any hope 15% 7.7% 8.1% 10% 7.7% 8.1% given by the first quar 7.0 12 5 8.6 6.6 8.7 ter—where a 9% earn 7.4 7 13.4 -41 7.5 6.1 ings decline had ended 17 15 11.1 10.9 10.9 11.2 a long string of double1.7 3.2 -4 80 1.9 2.9 digit decreases—that the chemical recession 7.8 15 8.2 6.6 38 8.4 was moderating, if not 5.8 9 -37 8.5 10.1 6.1 ending. -4 8.4 5 9.2 9.1 8.0 Perhaps even just as 1.0 20 8 0.9 0.8 0.8 worrisome is that earn 51 1.7 2.2 3.1 8 2.6 ings for the second quarter, which tradi -6 16.1 -51 8.3 15.1 7.5 tionally is stronger than 2.9 -41 4.2 0.4 4.9 1 the first, actually came 3.0 0 10 2.7 3.3 2.6 in about 5% below first14 27 13.7 12.3 13.5 11.8 quarter results. And 4.1 2.2 3.9 83 0 4.6 sales in the second quar ter were essentially flat. 8.5 16 2 6.9 7.5 8.1 Thus, profitability de 6.1 65 15 4.3 5.6 7.1 clined to an average 13 11 16.2 16.4 17.7 17.9 6.0% in the second quar 19 19 12.0 12.0 12.2 14.0 ter from 6.4% in the first 16 9.0 33 8.7 7.8 8.5 three months this year. For t h e f i r s t six 4 7.1 5.8 -16 9.5 9.3 months of 1991, earn 7 7.3 16 7.9 7.9 7.6 ings for the group of 30 12 5 11.3 10.6 11.0 10.3 chemical firms were 2.7 -2 4.7 -44 4.7 3.7 down 12% from the first 3.9 -11 4.8 9 5.0 4.1 half of 1990 to $2.70 bil lion. Sales for the first 10 2.1 1.0 def def def half were up 2% to about 3 6.3 6.6 -1 8.5 6.6 $43.8 billion. Thus, the -4 2.9 11 3.3 4.2 2.5 aggregate profit margin -7 4.0 -32 5.5 5.5 4.1 for the companies fell to -7 5 3.8 4.1 4.3 4.0 6.2% for first-half 1991 -17% 7.2% 5.7% β% 7.1% 6.2% from 7.1% during the first six months of last year. For the remainder of panies regularly surveyed by C&EN, the year, most of the chemical com 14 had lower earnings in the second panies see some improvement, but quarter than they had in second- the year is not going to be anything quarter 1990. And all of these de great, they say. Goodrich chairman clines were in the double-digit and chief executive officer John D. range, including Quantum Chemi Ong says, "Recessionary conditions in most major markets continued to cal, which reported a loss. After-tax earnings, excluding sig dampen our performance. We are nificant nonrecurring and extraordi beginning to see improvement in nary items for the 30 companies, to each of our major businesses, but we taled $1.33 billion, 18% below last nevertheless expect economic condi year's second quarter. Their com tions to remain difficult throughout bined sales increased just 2% to a to the balance of the year." tal of $22.0 billion. As a result, the Dow's executive vice president average profit margin (earnings as a and chief financial officer, Enrique percentage of sales) declined to 6.0% C. Falla, says, "Concerning the busi b
b
ness outlook for the remainder of 1991, we expect to see a modest re covery." But, he adds, "The recovery in basic chemicals and plastics will lag due to continuing weak industry fundamentals, while specialties will benefit from the recovery." At Rohm & Haas, J. Lawrence Wil son, chairman and chief executive officer, says, "The effects of the re cession remain with us. Even if the economy were to improve quickly, the Rohm & Haas upturn would lag by at least one quarter. We antici pate full-year results will parallel the performance of the first half, with earnings down approximately 20 to 25%." Jerry R. Satrum, president and chief executive officer of Georgia Gulf, says: "While the secondquarter results were on a par with the first quarter, we have seen in creased weakness in margins for some products in June and into July." Furthermore, he adds, "We
Ground rules for C&EN earnings analysis C&EN's quarterly report on financial performance of the U.S. chemical in dustry contains data from the 30 largest U.S. basic chemical companies and from 23 oil and diversified companies, each with more than $200 million in annual chemical sales, plus eight phar maceutical companies. To be included in the table of basic chemical producers, a company must have at least 5 0 % of its sales in chem icals. That is why Du Pont, for example, is included in the table of diversified manufacturers. In referring to chemical sales, C&EN means those chemicals whose molec ular composition has been changed in the course of manufacture. Hence, chemical sales include those of tradi tional categories of basic petrochemi cals and inorganics, organic intermedi ates and inorganic compounds, poly mers such as plastics and fibers, and agricultural chemicals and specialty de rivatives. In listing earnings, the survey gives after-tax income for continuing opera tions before nonrecurring items and ex traordinary charges. Foreign currency translations are included.
August 12, 1991 C&EN
19
Business
Drug companies had earnings gain, but oil and diversified firms lost ground SECOND-QUARTER 1991 Sales
Earnings"
($ millions)
OIL AND GAS COMPAN IES $ 6,744.0 Amoco 9,700.0 Chevron 27,267.0 Exxon 823.6 Fina 784.2 Kerr-McGee
$ 306.0 264.0 1125.0 4.2 10.3
14,449.0 5,056.0 3,150.0 5,345.0 3,090.0
401.0 50.0 33.0 22.0 43.0
9,031.0 2,725.0 $88,164.8
269.0 5.0 $2532.5
Mobil Occidental Petroleum Phillips Petroleum Shell Oil Sun Co. Texaco Unocal TOTAL
DIVERSIFIED MANUFACnruRERS $ 3,047.0 Allied-Signal 9,825.0 Du Pont 4,989.0 Eastman Kodak 649.2 Engelhard 1,046.6 FMC Ferro Corp. 3M NL Industries PPG Industries Termeco Vulcan Materials TOTAL
270.1 3,349.0 217.2 1,477.9 3,506.0 266.4 $28,643.3
PHARMACEUTICAL COIIflPANIES $ 1,683.0 Abbott Laboratories American Home 1,619.5 Products 2,197.0 Baxter International 2,730.4 Bristol-Myers Squibb 1,531.1 Pfizer Schering-Plough Upjohn Warner Lambert TOTAL
912.9 859.4 1,238.2 $12,871.5
FIRST-HALF 1991
Change from 1990
Profit margin"
Sales
1991
Earnings
1990
-9% 9 5 -1 -5
-19% -55 2 -92 -66
4.5 °/(• 2.7 4.1 0.5 1.3
5.1% 6.6 4.2 6.5 3.7
5 -1 10 3 7
-6 79 -69 -86 -63
2.8 1.0 1.0 0.4 1.4
3.1 0.5 3.7 3.1 4.0
4 0 3%
-24 -85 -25%
4.0 3.0 1.2 0.2 2.9% 4.0%
89.0 549.0 357.0 22.9 62.5
-4% 2 2 -14 6
-26% -21 -7 26 14
2.9% 5.6 7.2 3.5 6.0
3.8% 7.2 7.9 2.4 5.6
9.9 299.0 18.5 79.1 -14.0 25.9 $1498.8
-4 4 -6 -6 -4 -10 0%
39 -13 -55 -44 def -35 -27%
3.7 8.9 8.5 5.4 def 9.7 5.2%
2.5 10.6 17.7 9.0 5.7 13.4 7.1%
$ 268.3 265.2
12% 14
12% 32
15.9% 16.0% 16.4 14.1
10 10 9
28 17 18
6.4 17.9 11.0
6 14 7 10%
16 12 15 19%
18.3 16.7 14.8 15.2 12.5 11.6 13.9% 12.9%
$
141.0 489.5 179.1 167.4 127.5 154.6 $1792.6
Sales
5.5 16.8 10.1
Earnings"
( $ millions)
$ 14,059.0 $ 798.0 20,500.0 845.0 57,952.0 3816.0 1,639.5 12.5 1,569.8 40.0
Change from 1990
ProfM margin6
Sales
1991
-3% 12 10 -5 -2
Earnings
1990
-6% -20 9 -84 -30
5.7% 4.1 6.6 0.8 2.5
5.8% 5.8 6.6 4.6 3.5
8 1 8 1 2
30 -4 74 -60 -55
3.6 1.3 3.4 1.3 1.4
3.0 1.3 2.1 3.3 3.1
7 2 6%
0 -27 0%
3.8 3.6 2.1 1.5 4.3* > 4.6%
5,950.0 $ 152.0 19,504.0 1139.0 9,411.0 535.0 1,277.9 44.0 101.2 1,924.0
-5% 2 5 -9 7
-39% -13 -8 34 9
2.6% 5.8 5.7 3.4 5.3
4.0% 6.9 6.5 2.3 5.2
533.0 12.8 6,738.0 599.0 27.7 442.3 2,854.6 101.0 6,837.0 -13.0 463.4 23.7 $ 55,935.2 $2722.3
-5 5 -3 -6 -6 -12 0%
-2 -12 -58 -62 def -59 -25%
2.4 8.9 6.3 3.5 def 5.1 4.9%
2.3 10.6 14.3 8.7 4.2 11.1 6.6%
13% -1
12% 20
15.7% 15.8% 18.3 15.1
11 11 12
def 19 11
5.8 18.0 13.4
8 12 9 9%
16 13 15 37%
18.3 17.0 15.7 15.6 12.0 11.3 14.4% 11.5%
31,029.0 10,359.0 6,435.0 11,013.0 6,140.0
1111.0 133.0 219.0 147.0 84.0
19,211.0 684.0 5,442.0 80.0 $185,349.3 $7969.5
$
$
3,336.6 $ 522.4 617.7 3,383.8 4,319.0 5,465.1 3,326.8
251.0 982.1 446.5
1,862.2 340.6 1,658.7 260.8 2,455.4 294.1 $ 25,807.7 $3715.2
def 16.7 13.5
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales, def==deficit.
have not seen many encouraging signs of an immediate economic recovery. This could result in some further margin losses before a strengthening of the economy becomes readily apparent." Cabot Corp. chairman Samuel W. Bodman hedges somewhat by saying, "The recession impaired vol20
August 12, 1991 C&EN
umes and margins in our manufacturing operations, while record low gas prices severely depressed the summer market for liquefied natural gas. There are some signs that conditions may be improving, but we are cautious about the immediate future." While the 18% drop in earnings
for the chemical companies was bad, these firms should be happy that they are not oil companies or diversified manufacturers. Earnings at 12 oil companies surveyed by C&EN dropped 25% to $2.53 billion on a 3% sales increase to $88.2 billion. This caused the average profit margin for the group to fall to 2.9% in the sec-
Chemical earnings drop at oH companies While earning· at major chemical oompaniee ware faffing 19% In the second Quarter, earnings from chiifitoal opera» ϋοηβ ai oi oorraaniee ware droppfcio almost twice that much. Because oil companies report m* Income from chemical operations, this measure pro vides a aood look at wttft It heinentoa ror seven ON companies wan targe chemical bueJnaeeae-~«QheviOn. Exχοη, MODS« uootoaaw i^preiaum, rna» lips, She«, and Unocal eernfcugsfrom chemical operations
