NEWS OF THE WEEK
CHEMICAL EARNINGS: Growth remains healthy, but slows U.S. chemical companies earnings continued to grow during this year's third quarter, but that growth has slowed considerably from the yearto-year increases posted in the first and second quarters. These results substantiate the slowdown in the economy that many economists have been discussing recently. For the chemical industry, the slowdown stems mainly from two causes: the relative strength of the U.S. dollar against foreign curren cies, which has weakened chemical export markets; and continuing overcapacity in the industry, espe cially in basic chemicals, which has led to soft pricing of products. An other factor to consider is that earn ings for the third quarter of 1984 must be compared to a stronger 1983 quarter than the first and second quarters were compared to. Specifically, for 16 of the top 30 U.S. chemical companies, combined
third-quarter earnings reached $682 million, up 20% from last year's third quarter. Sales for these companies totaled $14.9 billion, up just 4%. As a result, the average profit margin for the group increased to 4.6% from 4.0% in the third quarter of 1983. The average year-to-year earnings gain for the third quarter, however, is down considerably from gains of 70% in the first quarter and 52% in the second quarter, based on C&EN's full 30-company sample. Nonetheless, most of the compa nies posted good gains in the third quarter. Stauffer, in a way, was one of the best. Although in the third quarter Stauffer reported a net loss of $14.7 million on sales of $346 million, by excluding extraordinary and nonrecurring items to calculate earnings from operations (C&EN's standard yardstick for earnings), the company ended up with earnings of $4.6 million. That compares with
a loss of $36.7 million in the same period last year. Stauffer's improve ment was so substantial that if its results were subtracted from the 16-company sample, earnings for the group would have been up an aver age of just 13% instead of 20%. Of the measurable percentage in creases on the list, Dow Chemical and Hercules scored highest with 28% rises from third-quarter 1983. Dow's earnings from operations in the third quarter totaled $110 mil lion, and those for Hercules were about $56 million. Dow's sales in creased 2% to $2.83 billion, but those for Hercules remained unchanged at $672 million. As a result, the prof it margin for Dow increased to 3.9% in the third quarter from 3.1% a year earlier, and the profit margin for Hercules rose to 8.3% from 6.5%. American Cyanamid, Olin, and Rohm & Haas also recorded earn ings increases larger than 20%.
Earnings still up for most chemical companies in third quarter Sales
THIRD-QUARTER 1984 Earnings 6 Change from 1983
( $ millions)
Air Products American Cyanamid Celanese Dow Chemical
1
4
Sales
Earnings
NINE MONTHS 1984 1 ProfH margin *
1984
1983
7.6% 5.4 4.7 3.9
6.7% 4.6 4.1 3.1
( $ millions)
Change from 1983 Earnings Sales
6.4%
I
4.3 2.5 3.1
|
21 34 28 32
7.4 2.8 2.9 7.8
6.1 2.3 2.2 6.5
|
8 10 17 10
28 25 44 21
4.9 6.7 7.4 3.2
4.1 5.9 6.1 2.9
|
10 19 7 10
35 def 63 26
9.3 2.8 4.3 4.2
7.6
I
def 2.9 3.6
6.7 1.9 6.5 5.6
1293.2 4897.0 1954.0 5132.0
95.7 136.5 55.9 398.0
0 10 -2 10
3.3 4.8 7.4 3.3
2.7 5.6 7.5 2.8
1569.4 500.0 3190.0 624.3
76.5 33.6 236.9 19.8
8.0 1.3 3.3 4.2
7.0 def 3.5 3.9
1587.5 1145.9 7132.0 1124.1
147.0 31.6 310.0 46.8
Ethyl W. R. Grace Hercules Monsanto
423.3 1658.3 672.0 1599.0
35.5 33.1 55.9 78.0
-6 10 0 3
18 18 28 -10
8.4 2.0 8.3 4.9
Olin Pennwalt PPG Industries Reichhold Chemicals
497.6 258.2 1040.0 195.9
16.3 12.5 76.7 6.4
2 4 12 1
25 -9 10 16
Rohm & Haas Stauffer Chemical Union Carbide Witco
484.6 346.1 2336.0 374.9
38.8 4.6 77.0 15.9
6 13 3 5
21 def -4 14
36% 40 115 77
8% 10 4 9
a After-tax earnings from operations excluding extraordinary and nonrecurring Hems, b After-tax earnings as a percentage of sales, def = deficil
October 29, 1984 C&EN
5 ProfH ιnargln 1984 1983
8.1% 5.4 5.2 5.0
$106.5 155.8 129.0 440.0
$ 31.7 51.2 38.0 110.0
16% 25 15 28
Earnings*
$1319.2 2880.7 2503.0 8731.0
$ 418.2 942.1 806.0 2829.0
2% 6 -1 2
Sales
.
American Cyanamid's earnings increased 25% to $51.2 million on a sales gain of 6% to $942 million. This raised Cyanamid's profit margin to 5.4% from 4.6% in the same period last year. Olin's earnings also rose 25%, to $16.3 million, and sales rose 2% to $498 million, raising its profit margin to 3.3% from 2.7%. And Rohm & Haas' earnings increased 21% to $38.8 million on a sales gain of 6% to $485 million. This increased the company's profit margin to 8.0% from 7.0%. Three firms—Monsanto, Pennwalt, and Union Carbide—had smaller earnings than in last year's third quarter. Monsanto's earnings declined 10% to $78 million on a 3% sales increase to almost $1.6 billion, giving the company a third-quarter profit margin of 4.9%, down from
5.6% in third-quarter 1983. Pennwalt's earnings were down 9% to $12.5 million on a 2% sales gain to $258 million. This brought the firm's profit margin down to 4.8% in the third quarter from 5.6% a year earlier. And Union Carbide's earnings decreased 4% to $77 million on a sales gain of 3% to $2.34 billion. That pushed its profit margins down slightly to 3.3% from 3.5% a year earlier. For the first nine months of this year, combined earnings for the 16 companies were $2.42 billion, up 51% from earnings posted by the same 16 companies during the first nine months of 1983. Combined sales were $45.6 billion, a 9% gain. As a result, the average profit margin rose to 5.3% from 3.8% in last year's first nine months. D
Monsanto opens life sciences lab Monsanto last week formally opened a $150 million life sciences research center, the cornerstone of its effort to develop new products for the agriculture, nutrition chemicals, and human health care markets. The life sciences program, which is based on both traditional chemical research and biotechnology, is part of the company's strategy to reduce its dependence on commodity chemicals. The four brick structures in suburban St. Louis contain 250 laboratories, 26 rooftop greenhouses, 123 plant growth chambers capable of duplicating most climate and soil conditions, and state-of-the-art computer facilities. Some 600 research and support personnel will occupy the center by the spring of 1985, and staffing will double by the end of 1987. Monsanto chief executive officer Richard J. Mahoney says the company could double both the size of and the investment in the facility in several years if need be. The trigger for expansion, according to research chief Howard A. Schneiderman, would be the appearance of new products. The first products to come out of research at the new center probably will be methionyl bovine somatotropin, a recombinant-DNA-derived
lactation enhancer for cows—targeted for commercialization later this decade—and improved strains of wheat and soybeans. Monsanto expects to begin marketing a turfgrowth regulator later this year or early in 1985 for use on nonresidential turf. Ongoing research is aiming at health care products in blood pressure regulation, senility, and other areas.
Schneiderman: new products
Mahoney notes that life sciences products currently represent about 20% of Monsanto's sales. In the 1990s, he says, he expects them to account for a third of sales. The rest would be split among chemicals and engineered products and other businesses. G
Biotech group defines future business hurdles The increasing likelihood that regulation and public perception will play major roles in the commercialization of biotechnology formed the core of discussions at the Industrial Biotechnology Association's third annual meeting in San Francisco earlier this month. The emphasis on these aspects reinforced the sense among biotechnology-based companies that achievement in the laboratory will no longer suffice to ensure business success, and that the industry is passing from an era of scientific management to one of professional management. Introducing a program of papers on patent, regulatory, and public acceptance issues, Harvey S. Price, IBA's executive director, warned the more than 100 conference attendees that maintaining a positive "climate" for biotechnology commercialization would require substantial effort and expense. "It was narrowly thought by some that the climate question would be a little blip. Most now realize that won't be true," he said. Rene D. Tegtmeyer, assistant commissioner for patents in the U.S. Patent & Trademark Office, described organizational changes the Patent Office has made to provide speedier protection for biotechnology products. Besides consolidating all biotech-related areas into one examining group and hiring more examiners, the office also has instituted a "special status" process that gives priority to patent applications that satisfy certain requirements. He pointed out, on the other hand, that the office is receiving a rapidly escalating number of applications—350 to 400 per year—and is working on a backlog of 2600 biotechnology product patent filings. He also October 29, 1984 C&EN 5
