BUSINESS
Chemical Earnings Post Solid Gains Based On Increased Sales, Higher Prices William J. Storck, C&EN Northeast News Bureau A iter almost four years of struggle, / % the U.S. chemical industry apJL J L pears to be in very good shape. Recently compiled financial figures for this year's third quarter continue an accelerating improvement that began in the first quarter. This has some executives in trie industry on an almost ecstatic plane. During the third quarter, chemical demand and prices improved to the point that combined sales for 29 of the 30 companies regularly charted by
Chemical industry leaders for the third quarter.
1 ·
1 2 3 4 5 6 7 8 9 10
·
8
Sales Rank 1994
the group jumped to 6.9% from 4.9% in third-quarter 1993. The most recent quarter's profit margin is below the 7.5% achieved in this year's second quarter for the same companies, but the third quarter is normally the weakest of the year. This traditional seasonal weakness showed up in chemical company sales, which were little changed when compared with the second quarter. Earnings were also down—about 4%. The year-to-year results for the chemical companies in the third quarter proved better than those for other chemical producer groupings. Earnings for 12 oil companies were essentially un-
C&EN rose 12%, while earnings soared 60% over last year's third quarter. Data on the 30th company were not available at press time. Thus, 1994 will be the first full year of solid earnings growth since 1988. And the increases were widespread in the group, with only three companies not showing improvement. Monsanto's earnings were unchanged, Crompton & Knowles' declined 11%, and Petrolite's dropped 27%. The 60% increase drove the chemical companies' combined earnings to $1.46 billion on sales of almost $21.1 billion. Thus, the aggregate profit margin for
Profitability
Earnings $ Millions
Rank 1993
Earnings as Rank % of sales 1993
Rank $ Millions 1993
Dow Chemical $5,046.0 1 Monsanto 1,912.0 2 W. R. Grace 1,306.7 3 Union Carbide 1,252.0 4 Eastman Chemical 1,130.0 5 Air Products 931.0 6 Arco Chemical 895.0 8 Rohm and Haas 874.0 7 Morton International 745.5 10 Praxair 733.0 11
$290.0 Dow Chemical 96.0 Union Carbide 95.0 Monsanto 93.0 Eastman Chemical 89.0 Arco Chemical 79.1 Air Products 76.0 W. R. Grace 72.3 Great Lakes Chemical 66.0 Hercules 61.9 Morton International
Great Lakes Chemical Georgia Gulf Nalco Chemical Loctite Betz Laboratories Lubrizol Arco Chemical Hercules First Mississippi Air Products
1 11 2 8 6 5 4 3 7 9
13.8% 12.8 12.5 12.3 10.8 10.1 9.9 9.7 9.6 8.5
I
1 15 2 3 4 10 7 6 26 7
. · . and for first nine months of 1994 Earnings8
Sales Rank 1994
1 2 3 4 5 6 7 8 9 10
$ Millions
Rank 1993
Dow Chemical $14,521.0 1 Monsanto 6,182.0 2 W. R. Grace 3,620.4 4 Union Carbide 3,555.0 3 Eastman Chemical 3,160.0 5 Rohm and Haas 2,674.0 7 Air Products 2,658.0 6 Arco Chemical 2,476.0 8 Morton International 2,284.6 10 Hercules 2,067.0 9
I
$714.0 Dow Chemical 541.0 Monsanto 232.0 Eastman Chemical 232.0 Union Carbide 218.0 Air Products 217.0 Rohm and Haas 202.0 Arco Chemical Morton International 191.8 183.0 Hercules 179.9 W. R. Grace
Note: Based on 30 chemical companies listed on page 30. a After taxes.
28
NOVEMBER 21,1994 C&EN
Profitability Earnings as Rank % of sales 1993
Rank $ Millions 1993
1 2 4 10 3 8 5 9 6 7
I
Loctite Betz Laboratories Nalco Chemical Georgia Gulf Lubrizol Crompton & Knowles Hercules Monsanto Morton International Ethyl
11.7% 10.7 10.7 9.9 9.7 9.1 8.9 8.8 8.4 8.3
1 2 2 17 6 4 8 9 10 5
|
Chemical industry 1994 third-quarter results Sales rose 12% Earnings shot up 60% Profitability was 6.9% Production grew 5.2% Prices increased 3.4%
Sales
Earnings
% change from year-earlier quarter 15
% change from year-earlier quarter 60 Γ 50 l·
10
40 l· 30 h
5
20 h 10
Γ
0
-10 I -20 L
-5 1992
1993
1994
1992
1993
1994
Profit margin
Production
Prices
After-tax earnings as % of sales 8
% change from year-earlier quarter
% change from year-earlier quarter
Γ
6
4
4
6Γ 5
Γ
4
Γ
3
Γ 2
ι
2 2 [Ι
1
Ι
Ο
1|
oil 1992 •it
•1
1993
1994
1992
1993
1994
1992
1993
1994
Note: All sales, earnings, and profit-margin data are based on 30 chemical companies listed on page 30.
changed at $3.23 billion on 7% sales growth to about $84.6 billion. Profit margins, therefore, retreated to an average of 3.8% from 4.1% during the same period last year. At nine pharmaceutical companies, earnings rose just 7% to $3.32 billion on a 13% sales increase to $19.4 billion, Again the aggregate profit margin fell for third-quarter 1994—in this group to 17.1% from 18.1%. And at 10 diversified manufacturers that are large chemical producers, earnings rose 14% to $1.47 billion and sales were up 9% to $21.8 billion. Because earnings rose more than sales, profitability increased to 6.7% for the third
quarter from 6.4% during the same period last year. For the first nine months of 1994, earnings for the 29 chemical companies increased 28% from last year's first nine months to a combined $4.06 billion on an 8% combined sales increase to $61.5 billion. The profit margin for the group increased a full percentage point to 6.6% from 5.6%. A number of factors drove the increase in chemical earnings, including demand, capacity utilization, and prieing. According to government data, demand for chemicals shot up in the third quarter year to year, with shipments of chemicals and allied products increas-
ing about 12%. Shipments of industrial chemicals, which account for more than half of chemicals and allied product demand, rose an even greater 14% over the comparable quarter in 1993. The increased demand led to increased production. Government figures show that production of the broad chemical category in the third quarter was up 5% over the same period last year, while output of industrial chemicals and synthetics grew some 6%. The difference between the increase for production and the greater increase for demand indicates that chemical producers were selling out of inventory dur ing the third quarter this year. NOVEMBER 21,1994 C&EN
29
BUSINESS
Major chemical companies increased third-quarter earnings; an average of 60% NINE-MONTHS 1994
THIRD-QUARTER 1994 Sales
Earnings3
($ millions)
Air Products Albemarle Arco Chemical Betz Laboratories Cabot
$
931.0 $ 282.6 895.0 180.4 417.7
Change from 1993 Sales
79.1 12.8 89.0 19.4 18.4
9% 25 14 2 7
Earnings
33% 10 62 10 19
Sales
Profit margin"
Earnings3
Change from 1993 Sales
($ millions)
1994
1993
8.5% 4.5 9.9 10.8 4.4
7.0% $ 2,658.0 $ 218.0 37.9 794.3 5.1 202.0 2,476.0 7.0 56.8 533.0 10.0 62.7 1,281.4 4.0
6% 19 5 3 5
Earnings
6% 80 31 2 31
Crompton & Knowles Dow Chemical Eastman Chemical Ethyl First Mississippi
142.8 5,046.0 1,130.0 244.9 156.9
10.2 290.0 93.0 18.3 15.0
7 15 16 -6 38
-11 109 98 1 1,775
7.1 5.7 8.2 7.5 9.6
8.6 3.2 4.8 7.0 0.7
430.9 14,521.0 3,160.0 755.0 435.9
39.1 714.0 232.0 62.7 28.8
4 7 8 -4 30
-1 3 28 -5 1,100
H. B. Fuller Geon Georgia Gulf W. R. Grace Great Lakes Chemical
286.8 312.3 249.0 1,306.7 525.2
8.9 20.0 31.8 76.0 72.3
14 23 25 15 12
3 264 215 19 6
3.1 6.4 12.8 5.8 13.8
3.4 2.2 5.1 5.6 14.6
801.7 858.1 650.1 3,620.4 1,499.8
22.3 39.8 64.5 179.9 92.1
10 18 13 13 10
11 611 103 21 14
Hercules IMC Global International Flavors Loctite Lubrizol
681.0 420.8 na 183.3 396.5
66.0 21.8 na 22.6 40.1
1 58 na 19 1
28 nm na 39 48
9.7 5.2 na 12.3 10.1
7.6 def 16.6 10.6 6.9
2,067.0 1,266.9 na 521.0 1,201.5
183.0 42.4 na 61.1 117.0
0 77 na 13 5
22 nm na 14 25
Monsanto Morton International Nalco Chemical Olin Petrolite
1,912.0 745.5 343.4 666.9 90.2
95.0 61.9 43.0 22.1 3.8
3 20 -3 10 -3
0 44 11 342 -27
5.0 8.3 12.5 3.3 4.2
5.1 6.9 10.9 0.8 5.6
6,182.0 2,284.6 1,031.6 1,979.9 272.6
541.0 191.8 109.9 65.0 15.5
3 24 -1 9 5
24 50 -2 110 2
21 9 0 11 4 12%
59 104 28 153 27 60%
Praxair Rohm and Haas Stepan Union Carbide Witco TOTALc
733.0 51.0 874.0 55.0 4.1 110.8 1,252.0 96.0 564.2 27.0 $21,080.9 $1,463.6
7.0 6.3 3.7 7.7 4.8 6.9%
148.0 1,989.0 5.3 217.0 2,674.0 3.4 10.2 330.3 2.9 232.0 3.4 3,555.0 78.3 1,683.2 3.9 4.9% $61,514.2 $4,064.8
9 7 -2 0 2 8%
44 46 -9 92 29 28%
r a After-tax earnings from continuing operations, excluding significant nonrecurring and extraordinary items, b Earnings as a percentage of sales, c or companies reporting, na == not available.
The increased demand also drove prices higher in the quarter, according to government data. The producer price index for chemicals and products increased about 3% and that for industrial chemicals was up almost 5%. These results showed up in company earnings statements. For instance, Dow Chemical says it had an 11% increase in volume during the quarter and a 4% increase in prices. Dow's executive vice president, Enrique C. Falla, comments: "We are pleased with our near-record sales because the third quarter is seasonally our lowest quarter. Other major accomplishments included our continued reduction in structural costs and the addition of more than 2 billion lb of capacity in chemicals and plastics at a time when shortages exist for many of 30
NOVEMBER 21, 1994 C&EN
our products." Dow's sales were up 15% for the quarter to almost $5.05 billion and earnings more than doubled, rising 109% to $290 million. Rising prices and increased demand, along with cost reductions, boosted the bottom line for many companies, especially those making commodity industrial chemicals. For Olin, which posted a 342% increase in total earnings to $22.1 million on a 10% sales increase to $667 million, chemical operations earned $10.5 million compared with a $1.9 million loss in the same period last year. The increase was a result of improved pricing, higher demand, and cost reductions. This was especially true, the company indicates, for its chlor-alkali operations. For Union Carbide, whose earnings
rose 153% to $96.0 million, chairman Robert D. Kennedy attributes the improvement to increased volume, coupled with continued cost containment, and to strengthening prices toward the end of the quarter, especially for commodity polyolefins and ethylene glycol. Kennedy says margins should continue to improve in the fourth quarter, with price increases more than offsetting any increase in raw material costs. The growth of commodity chemicals really showed up for oil companies, whose primary chemical products are bulk petrochemicals. Occidental Petroleum, with a 258% increase in chemical earnings to $156 million, attributed the increase to improved cost margins in polyvinyl chloride, chlorine, and petrochemicals.
al items, doubled to $104 million; fibers earnings gained 24% to $148 million; and polymers earnNINE-MOr ^ITHS 1994 12-MONTH RUNNING DATA ings grew 170% to $219 Change from 1993 Profit rnargin Profit margin 1994 1993 1994 Sales Earnings million. 1993 While higher prices 8.2% 8.2% 8.4% 7% 5% 8.3% for commodity chemi3.1 4.8 na na na na cals were driving chem8.2 7.4 7 2 6.5 7.0 ical earnings at many 10.7 10.8 11.4 -12 0 10.1 companies to triple-dig3.9 4.9 3.2 3 4.5 46 it increases, specialty 9.4 9.5 9.1 3 9 8.8 chemical producers 5.1 4.9 -1 3.8 25 3.0 were not quite so fortu6.2 2 7.3 7.8 6.6 -13 nate. The same price im8.4 8.3 na na na na provements that helped 0.7 387 6.6 3.5 15 0.8 the petrochemical and bulk producers often be2.8 -11 6 2.8 3.4 2.9 came cost increases for 0.8 4.6 nm 15 2.6 def 5.5 9.9 2 5.4 6.9 31 downstream specialty 5.4 4.6 5.0 4.4 -6 16 companies. 14 5.9 15.4 7 6.1 14.5 An easy way to see this is in the disparity 0 7.3 8.9 6.4 8.3 29 between the increase in def nm 3.3 0.7 61 def the producer price in18.0 na 17.1 na na na dex for chemicals and 11.7 -11 5 12.7 10.8 11.6 allied products and that 8.2 9.7 8.4 6 7.0 29 for industrial chemicals. 7.2 8.8 7.4 3 5.2 49 The 2-percentage-point 8.4 6.9 42 23 7.9 6.9 difference between the 10.7 10.8 10.7 -2 0 10.5 3% increase for the 7 3.3 51 1.6 2.3 1.7 broad category and the 5.7 5.9 5.4 17 13 5.5 5% rise for industrial 7.4 -1 5.6 6.7 25 5.3 chemicals means down5.9 8.1 3 6.5 5 6.3 stream companies that -1 3.3 3.1 3.4 2.5 -28 use industrial chemicals 3.4 -7 6.5 5.0 79 2.6 as their raw materials 3.7 4.7 4.7 44 6 3.5 are getting caught in 5.6% 14% 1% 6.6% 5.8% 5.2% something of a price squeeze in some of the nm = not meaningful, def == deficit. other market categories. Thus, for many of Sun Co/s chemical earnings in- the specialty companies, earnings, alcreased to $10 million from just $3 mil- though respectable, increased at nolion in last year's third quarter. The where near the rate enjoyed by comcompany says a strengthening in the modity-oriented firms. For instance, worldwide economy and lower feed- W. R. Grace, which claims to be the stock costs led to significantly higher world's largest specialty chemical comproduct margins, particularly for aro- pany, posted a 19% earnings increase matics and propylene. for the quarter to $76.0 million on a Phillips Petroleum chairman and chief 15% sales increase to $1.31 billion. J. P. executive officer W. Wayne Allen says, Bolduc, president and chief executive "Chemicals in particular are experienc- officer, says, "Volumes are generally ing higher sales volumes and better mar- strong, operating margins are improvgins due to improved demand/' Cost ing, European results for specialty margins were better for olefins, and sales chemicals are recovering nicely, and involumes were higher for olefins, plastics, ternal cost control efforts are having a and cyclohexane. favorable impact." And, he says, "seAnd for other chemical producers, lected price increases are being implethe picture was much the same. Du- mented to offset raw material cost Pont's earnings from the company's pressures." chemical operations, excluding unusuH. B. Fuller president and chief execb
6
utive officer Walter Kissling says: "For the past three months, a set of unusual circumstances has been emerging that influenced our third-quarter results. The two major forces are, one, our European business has not fully recovered; and, two, raw material costs have climbed and we have experienced some raw material shortages. Any one of these events alone would not have a serious impact on us, but taken together in a short time span they have restricted earnings for the quarter." To counter an expected continuation of increasing raw material costs in the fourth quarter, Kissling says, "we have implemented a plan to raise selling prices in response to raw material increases." Fuller had just a 3% increase in earnings to $8.9 million on a 14% sales increase to $287 million. Some downstream operations did very well, however. Lubrizol's chairman, L. E. Coleman, says, "Improving price, product mix, and currency effects offset higher raw material prices and resulted in better gross profit margins. In addition, manufacturing and operating expenses are being managed below last year's levels, which helped to further increase operating margins."
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 22 oil and diversified companies, each with more than $200 million in annual chemical sales, plus nine pharmaceutical companies. To be included in the table of basic chemical producers, a company must have at least 50% of its sales in chemicals. That is why DuPont, for example, is included in the table of diversified manufacturers. In referring to chemical sales, C&EN means those chemicals whose molecular composition has been changed in the course of manufacture. Hence, chemical sales include those of traditional categories of basic petrochemicals and inorganics, organic intermediates and inorganic compounds, polymers such as plastics and fibers, and agricultural chemicals and specialty derivatives.
NOVEMBER 21,1994 C&EN
31
BUSINESS
Earnings of oilfirmswere unchangedin third quarter, up at drug and diversified companies NINE-MONTHS 1994
THIRD-QUARTER 1994 Sales
Earnings8
($ millions)
Change from 1993
Profit margin6
Sales
1994
Earnings
1993
Sales
Earnings3
($ millions)
Change from 1993
Profit marginb
Sales
1994
Earnings
1993
OIL AND GAS COMP,MIES Amoco $ 7,780.0 $ 445.0 Ashland 2,853.0 54.0 Chevron 9,500.0 407.0 Exxon 29,563.0 1,155.0 Fina 918.2 29.0 Kerr-McGee 858.2 17.7
10% 8 3 6 9 5
-25% 10 -28 10 34 -6
5.7% 1.9 4.3 3.9 3.2 2.1
8.3% 1.8 6.1 3.8 2.6 2.3
$ 22,580.0 7,763.0 26,600.0 82,846.0 2,533.8 2,523.9
$1,239.0 130.9 1,093.0 3,134.0 66.3 69.7
6% 2 -6 0 -4 3
-7% 14 -33 -3 -21 -9
5.5% 1.7 4.1 3.8 2.6 2.8
6.3% 1.5 5.8 3.9 3.2 3.1
Mobil 16,886.0 528.0 Occidental Petroleum 2,404.0 23.0 Phillips Petroleum 3,315.0 141.0 Shell Oil 323.0 5,742.0 Sun Co. 2,726.0 55.0 Unocal 2,020.0 54.0 TOTAL $84,565.4 $3,231.7
6 25 5 7 14 3 7%
-14 nm 152 33 -10 -11 0%
3.1 1.0 4.3 5.6 2.0 2.7 3.8%
3.9 def 1.8 4.5 2.6 3.1 4.1%
48,219.0 6,672.0 9,194.0 15,682.0 7,046.0 5,981.0 $237,640.7
1,576.0 -36.0 310.0 798.0 88.0 183.0 $8,651.9
-3 2 9 , nm 24 -2 24 -2 -36 -1 -21 -6 -8% 0%
3.3 def 3.4 5.1 1.2 3.1 3.6%
3.4 0.9 2.7 4.1 1.9 3.7 4.0%
DIVERSIFIED MANUFACTURERS AlliedSignal $ 3,110.0 $ 189.0 DuPont 10,029.0 647.0 Engelhard 29.7 578.6 Ferro Corp. 296.8 11.6 FMC 34.7 1,009.6
11% 7 4 13 9
15% 4 8 -23 -2
6.1% 6.5 5.1 3.9 3.4
5.9% 6.6 4.9 5.7 3.8
$ 9,283.0 29,863.0 1,769.7 880.4 2,971.7
$ 554.0 2,081.0 84.3 34.9 148.1
6% 5 10 10 6
16% 28 17 -22 3
6.0% 7.0 4.8 4.0 5.0
5.5% 5.7 4.5 5.6 5.1
Freeport-McMoRan BF Goodrich 3M PPG Industries Vulcan Materials TOTAL
25 12 10 12 9 9%
def 50 8 91 3 14%
2.3 4.1 8.9 9.2 10.4 6.7%
def 3.1 9.1 5.4 11.0 6.4%
1,421.2 1,604.4 11,224.0 4,671.5 904.0 $64,592.9
48.7 46.7 990.0 363.6 66.1 $4,417.4
26 21 7 7 6 7%
nm 220 1 51 -2 21%
3.4 2.9 8.8 7.8 7.3 6.8%
def 1.1 9.3 5.5 8.0 6.0%
9% 4
11% 4
15.6% 15.3% 18.3 18.3
$ 6,674.1 6,380.4
$1,094.1 1,225.7
8% 3
9% 13
16.4% 16.3% 19.2 17.6
10 2 8
6.4 21.2 17.5
6,824.0 8,736.1 5,132.9
424.0 1,743.8 996.0
5 4 10
31 2 -2
6.2 20.0 19.4
11,098.3 5,981.1 3,477.4 2,635.0 $56,939.3
2,224.1 964.4 718.2 381.0 $9,771.3
48 9 6 -2 12%
0 8 13 -8 5%
20.0 29.7 16.1 16.3 20.7 19.4 14.5 15.5 17.2% 18.3%
503.2 11.5 561.5 23.3 3,820.0 341.0 145.5 1,575.1 360.4 37.6 $21,844.2 $1,470.9
PHARMACEUTICAL COMPANIES Abbott Laboratories $ 2,254.8 $ American Home 2,258.5 Products Baxter International 2,315.0 Bristol-Myers Squibb 2,931.9 Eli Lilly 1,817.4 Merck Pfizer Schering-Plough Upjohn TOTAL
351.3 413.0 149.0 620.8 318.7
3,792.0 784.8 2,074.9 336.5 1,125.7 224.3 839.0 126.0 $19,409.2 $3,324.4
4 2 19 49 11 6 -4 13%
11 8 12 -18 7%
6.1 21.2 19.2
20.7 27.7 16.2 16.6 19.9 18.8 15.0 17.4 17.1% 18.1%
5.0 20.2 21.8
a After-tax earnings from continuing operations, excluding si(jnificant nonrecurring and extraordinary items b Earnings as a percentage of sales, nm = not meaningful. def=deficit.
Hercules chairman Thomas L. Gossage is especially glowing: "Our chem ical segment showed strong perfor mance by any measure. Both food and functional products and chemical spe cialties [units] had 13% increases in revenues for the quarter, benefiting from the stronger U.S. economy and improvement in European economies. The food and functional products unit is sold out in nearly all of its product 32
NOVEMBER 21, 1994 C&EN
lines, reflecting improvements in the food, paint, and construction industries in both the U.S. and Europe." Gossage notes that this division had a 43% gain in operating profits, and chemical spe cialties had a 29% increase. All told, it looks as if the chemical economy is on a roll, at least into next year. The U.S. economy continues to im prove. Europe and its markets have fi nally begun to come back. And some
countries in the Pacific Rim are improv ing economically. Thus, Latin America seems to be the last region where the in dustry is waiting to see meaningful eco nomic recovery. Sustained or increased demand in these areas, especially when coupled with improved pricing, guarantees the industry better earnings for the remain der of this year and should mean an even better 1995. Π
