News of the Week
CHEMICAL EARNINGS DROP IN SECOND QUARTER U.S. chemical companies weren't kidding when they warned late in the second quarter that earnings had been hit hard (C&EN, June 30, page 4). With a few exceptions, leading chemical producers have reported mild to severe drops in earnings from second-quarter 1979. Some have even reported sales declines from last year. Overall, results to date from 25 of the 40 chemical companies in C&EN's quarterly earnings survey show that earnings are down an average of 18% in the second quarter from a year ago on a 6% gain in sales. That's quite a reverse from the first quarter, when the year-to-year comparisons showed average earnings still up 31% and sales up 21%. The earnings decline in the second quarter leaves the chemical industry barely above a flat performance for
Companies with earnings down first-half 1980. Through the first six months, average earnings for the 25 more than half from a year ago in the companies reporting so far are now second quarter also included B. F. just 2% ahead of 1979, and sales are Goodrich, off 59%; Monsanto, off 61%; and Akzona, off 71%. Other notable up 12%. Needless to say, profit margins drops at the largest companies were have fallen. For the second quarter 16% at Union Carbide, 20% at Dow combined after-tax profit margin on Chemical, 25% at American Cyanasales for the 25 companies was 5.4% mid, 34% at Du Pont, and 44% at compared to 7.0% in second-quarter Celanese. 1979. For first-half 1980, combined Sales fell at four of the companies profit margin for these companies has in the second quarter—1% at Celaslipped to 6.4% from 7.0% in 1979. nese and National Distillers, 4% at The earnings range among com- PPG Industries, and 6% at Reichhold panies has moved way down from the Chemicals. No company's sales were heights of the first quarter. In the lower for the first half of the year. second quarter, the leading gainer to At the other extreme, there were date is Texasgulf with earnings up only four companies with double83% from a year ago. The worst drop digit earnings increases in the second was at Reichhold Chemicals, whose quarter. Besides Texasgulfs 83% earnings are down 97%. Of the 25 jump on an 18% sales increase, W. R. companies, 19 suffered lower earnings Grace's earnings rose 47% on a 13% than in second-quarter 1979. sales gain, Big Three Industries'
Only a few companies manage earnings gain in second quarter
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$ Millions
Akzona
Sales
$ 244.4
Second-quarter 1980 Change EarnChange from 1979 ings 3 from 1979
3%
Sales
Change from 1979
8% 21
1.4
-71%
0.6%
2.1%
Air Products
356.9
16
26.9
8
7.6
8.1
$ 537.6 734.1
American Cyanamid
837.0 154.3 803.0
5
32.6 20.4 25.0
-25
3.9 13.2 3.1
5.4
1667.0
26 -1
12.3 5.6
307.1 1650.0
8 26 6
Big Three Industries Celanese
$
First-half 1980 Profit margin b 1980 1979
36 -44
Earnings 8
$
Change from 1979
Profit margin b 1980
1979
1.3% 2 . 9 %
6.8 61.2
-53% 24
8.3
70.6 40.7 61.0
-16 37 -21
4.2
5.4
13.3 3.7
12.3 5.0
769.1
34
56.3
6
7.3
9.2
1524.5
41
112.6
36
7.4
7.6
2522.7
9
171.2
-20
6.8
9.3
5332.2
22
401.7
3
7.5
8.9
Du Pont c Ethyl c Ferro
3412.3 440.5
176.6 24.1 4.7
-34 -8 -35
5.1 5.5
8.3 6.4
2.8
5.0
6980.2 879.1 340.4
11 12 21
421.0 45.3 11.8
-18 -4 -27
6.0 5.2 3.5
8.2
170.9
5 7 17
Freeport Minerals 0
147.6
20
29.8
20.7
1.3
3.3
65.1 30.0
-40
2.0
20.0 3.4
W. R. Grace
1541.4
13
10.0 86.7
33 1
21.4
0
304.0 1520.0
43
749.9
18 -59
20.2
B. F. Goodrich Hercules Monsanto
624.0 1548.6
6 1
47
5.6
4.4
2905.5
15
151.9
53
5.2
4.3
6.8
1269.0
11
-21
4.8
3.9 6.7
23.2
1.5
3.9
3371.1
7
60.6 187.4
-15
5.6
7.0
-1 2
29.6 27.2
-3 -1
5.8
5.9 5.8
1071.2 958.7
1 5
72.7
16
49.2
10
6.8 5.1
4.9
National Distillers 0
512.7
Olin Pennwalt c
483.4
PPG Industries
753.7
8 -4
10.9 39.7
Reichhold Chemicals
213.2
-6
0.2
Rohm & Haas
467.1
10
Staufffer Chemical Texasgulf 0 Thiokol
357.1
3
240.6 153.2
18 5 4
Union Carbide 0
292.4
2370.9
6.1 5.0
-33 -61
26.9
5.6
5.9
-22
3.7 5.3
5.2 7.4
595.2 1550.0
12
-31 -97
3
23.2 94.4
-3 -12
3.9 6.1
4.5 7.1
0.1
2.6
449.5
4
4.4
-48
1.0
2.0
27.0
-1
5.8
6.4
902.8
11
54.2
-2
6.0
6.8
20.0
-20
5.6
7.2
940.0
11
89.7
3
9.5
10.3
59.1 7.7
83 -7
15.9 5.7
149.9
-16
24.6 5.0 6.3
520.6 308.1 4936.5
38 10 11
136.7 17.3 369.8
137 11 11
26.3 5.6 7.5
15.3 5.5 7.5
7.8
a After-tax, before major extraordinary or nonrecurring items, for continuing operations, b After-tax income as a percentage of sales, c Earnings exclude major extraordinary or nonrecurring items.
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C&EN July 28, 1980
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8.1
Dow Chemical
Diamond Shamrock
| |
I
earnings rose 36% on a 26% sales in- I crease, and Freeport Minerals' earnings gained 18% on a 20% sales rise. Big Three continued its aggressive growth in industrial gases and oil field services, and the other three profited from agricultural chemicals, especially in export markets, and from natural resources. Chemical company leaders are emerging a bit startled from the second quarter. "We and other chemical producers were somewhat surprised by the severity of reduced demand in the second quarter, which also led to poor operating rates," says John D. Ong, chairman of B. F. Goodrich. John W. Hanley, Monsanto chairman, comments, "While we had anticipated an economic downturn, we had not projected adequately the extent of the credit constraints im- I posed by the Federal Reserve and the significant impact that those credit constraints had on the demand for automobiles and housing." At Dow Chemical, financial vice president G. J. Williams elaborates, "New orders dropped abruptly in the U.S. in late April, and this resulted in reduced shipments for the quarter. In most other areas of the world, business was mixed, with Latin America and some countries in Europe showing continued strength." Business outside the U.S. helped shore up other multinationals as well. For example, Du Pont's sales abroad were up 16% in the second quarter from a year ago but flat in the U.S. with a physical volume decline in the U.S. of 14%. Similarly, Union Carbide's international sales gained 13% in the second quarter but U.S. sales were dead-even on a physical volume drop of 17%. Some companies survived the second quarter with only moderate earnings damage because of hot-performing specialty businesses. Examples are Olin with its swimming pool chemicals market and Rohm & Haas with herbicides. Grace also comments on favorable performance from its array of chemical specialties. From this point, some companies are prepared for worse than they expected. Dow's Williams says, "It now appears that the recession will be deeper and longer than we had previously thought. We therefore don't expect that our net income for the year will equal that of 1979." The same sort of talk comes from James G. Affleck, chairman of American Cyanamid. "We now expect that earnings for the year as a whole will fall below the record level of 1979. Our expectations are based on the likelihood that the U.S. recession will be deeper and longer than originally anticipated." D
America's Cup yachts sport Mylar sails When the U.S. 12-meter yacht takes to the seas on Sept. 16 off Newport, R.I., to defend the America's Cup against its foreign challenger, it will be moving under sails made with Mylar polyester film. The innovation in sail material and design is being sported by Freedom (shown here) as well as by Clipper and Courageous, the three U.S. contenders vying this summer for the right to defend the cup. The mainsail on Freedom is made of Mylar laminated to Kevlar aramid fiber, and the genoa jib is made of Mylar laminated to Dacron polyester. Du Pont, manufacturer of the materials, notes that the sails are composed of a film layer laminated to woven fabric. Unlike standard woven sailcloth, the Mylar sails maintain designed-in stretch characteristics under demanding wind conditions. And because of Mylar's high-strength and low-stretch properties, the sails provide equal performance at much lower weight.
Energy potential from biomass high, OTA says In a somewhat optimistic report, the Office of Technology Assessment concludes that the U.S. could get as much as 20% of its energy needs from biomass by the end of this century. This latest in a series of energy studies, done by OTA at the request of the Senate Committee on Commerce, Science & Transportation, focuses on the energy potential and policy implications of producing large amounts of energy from biomass over the next 20 years. It says that as many as 17 quadrillion Btu (quads) could come from bioenergy, mostly from wood and plants but also from grain and sugar crops, crop residues, animal manure, food processing wastes, oilbearing plants, seaweed, and other materials. This prediction differs a lot from the latest national energy plan of the Department of Energy. It predicts only 3 quads from biomass by 2000. Thomas E. Bull, project director for the OTA study, claims that OTA used "a more reasonable assumption" of the amount of material available from forests than did DOE. OTA believes actual resources are much greater than data given DOE by the U.S. Forest Service, and, hence, got a higher value for prospective energy production. The most efficient processes for replacing oil with energy from biomass, OTA says, are direct combustion and gasification of wood and plants. This could be used for space heating or process steam heat. These
uses could produce as much as 10 quads by 2000. Methanol is considered by OTA as the least expensive near-term option for a liquid fuel from wood and plants. It could replace 3 million bbl of oil per day by 2000. But methanol does not mix well with gasoline, OTA says, so it recommends methanol be used straight and not in a blend. Although acknowledging the value of producing ethanol from food crops to use as fuel, OTA puts a cautious economic lid on the practice. Bull says that ethanol production "can probably go as high as 2 billion gal annually without much effect on food prices." Beyond that, he warns, some sort of controls may have to be used. The extent of food-fuel competition cannot be estimated very well, he says, as it depends on so many factors, such as the grain markets, future demand for food, chemical feedstock prices, and the costs of developing new land for grain. OTA warns that although bioenergy offers some important environmental benefits compared to some of its alternatives, there is potential for severe environmental damage. Specifically cited are careless forest management, expansion of acreage in crop production leading to increased erosion of soil, and increased fertilizer and pesticide runoff. Though these may be acceptable hazards when using land for food production, it is less certain they are acceptable for energy production. D July 28, 1980 C&EN
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