Business
Chemical earnings sag 12% in second quarter Profits of major chemical companies dropped suddenly, sending profit margins for the quarter plummeting to 5.6% from last year's 7.0% William J. Storck and William F. Fallwell C&EN, New York
The string of earnings increases has finally run out for the U.S. chemical industry. After six straight quarters of phenomenal gains by chemical companies, earnings growth did not just stop in the second quarter this year. It upended. Combined earnings of the 40 larg est chemical companies in C&EN's quarterly survey fell 12% to $1.3 bil
lion in the second quarter. At the same time, combined sales increased 9% to $22.7 billion. The drop in earnings would have been even more dramatic had it not been for smaller chemical companies propping up earnings of the larger ones. Among the 20 largest com panies, earnings fell 16% to a com bined $1.1 billion from the same pe riod last year. At the same time, combined earnings of the 20 smaller companies were climbing about 22% to $219 million. The drop in chemical earnings in the second quarter also dampened the earnings increase for the year to date. For the first half of 1980, earnings for the 40 companies gained 7%—this after a 21% increase in the first quarter. The combined profit margin for these companies in the second quar ter, 5.6%, is also quite a drop from the 7.0% profit margin achieved in the
Chemical industry leaders for second-quarter 1980. Sales Rank
1 2 3 4 5 6 7 8 9 10
Earnings
Profitability $ Millions 3
$ Millions
Du Pont $176.6 $3412.3 Du Pont Dow Chemical 171.2 2522.7 Dow Chemical Union Carbide 149.9 2370.9 Union Carbide Monsanto 86.7 1548.6 W. R. Grace W. R. Grace 73.0 1541.4 Allied Chemical 59.1 Allied Chemical 1364.1 Texasgulf American Cyanamid 56.3 837.0 Diamond Shamrock Celanese 52.3 803.0 Williams Cos. Diamond Shamrock 39.7 769.1 PPG Industries PPG Industries 753.7 International Minerals 35.9
Earnings as % of sales
Texasgulf Freeport Minerals Lawter Chemicals International Flavors Great Lakes Chemical Lubrizol Nalco Chemical Loctite Petrolite Beker industries
24.6% 20.2 15.6 15.4 14.3 12.1 11.7 11.6 10 7 9.9
a After taxes. Note: For 40 chemical companies listed on page 10.
and for first-half 1980 Saies
1 2 3 4 5 6 7 8 9 10
Profitability
Earnings $ Millions
$ Millions 3
Du Pont $6980.2 5332.2 Dow Chemical Union Carbide 4936.5 Monsanto 3371.1 2905.5 W. R. Grace 2748.3 Allied Chemical American Cyanamid 1667.0 Celanese 1650.0 PPG Industries ' 1550.0 Diamond Shamrock 1524.5
Du Pont $421.0 401.7 Dow Chemical Union Carbide 369.8 187.4 Monsanto 151.9 W. R. Grace 141.2 Allied Chemical 136.7 Texasgulf Diamond Shamrock 112.6 94.4 PPG Industries 89.7 Stauffer Chemical
Rank
a After taxes. NOTE: For 40 chemical compa lies listed on page 10.
8
C&EN Aug. 11, 1980
Earnings as °>Ό of sales
Texasgulf Freeport Minerals Lawter Chemicals International Flavors Great Lakes Chemical Lubrizol Beker Industries Loctite Nalco Chemical Petrolite
26.3% 21.4 15.8 15.2 15.1 12.5 12.5 12.0 11.4 9.8
second quarter last year. The latest figure is at the lowest level since fourth-quarter 1977, when it dropped to 5.4%. Chemical company executives lay the second-quarter drop in earnings squarely on the recession. For exam ple, Irving S. Shapiro, chairman of Du Pont, says: "During the quarter the U.S. recession, which was felt initially in the automotive and housing in dustries, spread to almost all other U.S. markets, affecting most of our product lines." John W. Hanley, chairman and chief executive officer of Monsanto, says, "Monsanto's second-quarter results clearly reflect the severity of the recession that we are now wit nessing. While we had anticipated an economic downturn, we had not pro jected adequately the extent of the credit constraints imposed by the Federal Reserve and the significant impact that those credit constraints had on the demand for automobiles and housing." Pennwalt chairman Edwin E. Tuttle notes the suddenness of the downturn. "Although the quarter started off strong, it turned soft rather abruptly," he says. And William S. Sneath, chairman of Union Carbide, says that adverse effects on earnings were caused by "an across-the-board decline in do mestic sales volume, reflecting soft ness in the U.S. economy. With vol ume dropping and raw material costs rising, and with no price relief over the prior quarter, the pressure on profit margins continued." Executives also do not see an im mediate end to the problems. James G. Affleck, chairman of American Cyanamid, says that, based on results thus far in 1980, "We now expect that earnings for the year as a whole will fall below the record level achieved in 1979. Our expectations are based on the likelihood that the U.S. recession will be deeper and longer than antic ipated." At Rohm & Haas, chairman Vin cent L. Gregory Jr. says, "With the current state of the U.S. economy and continued inflationary pressure on our costs, we will find it difficult to reach last year's record earnings for the entire year." Harold E. Thayer, Mallinckrodt's chairman, says, "As
Chemical Industry Second-Quarter Results
•Sales were up 9% • But earnings dropped 12%
Sales
Earnings
% change from year-earlier quarter 40
% change from year-earlier quarter
30
• Profit margins fell • Production decreased 1.8%
20
• Prices climbed 20% io r
1978
1979
1978
1980
1980
1979
Profit margins
Production
Prices
After-tax earnings as % of sales 8|
% change from year-earlier quarter
% change from year-earlier quarter
.1
1978
1979
1980
1978
1979
1980
1978
1980
1979
For 1980 sales likely will increase about 8% to top $94 billion; earnings will drop to $5.1 billion; profit margins will fall to 5.5% Annual sales
Annual earnings
Annual profit margins
$ Billions 100
$ Billions
Per cent 8
el
1970
72
74
76
78
i 80
a C&EN estimates. Note: All sales, earnings, and profit margin data are based on the combined performance of the 40 largest chemical makers listed on page 10.
Aug. 11, 1980 C&EN
9
Second-quarter earnings dropped 12 % , causing profit margins to fall to 5.6% SECOND-QUARTER 1980 Sales Earnings Change from 1979 Earnings ( $ millions) Sales
Profit margin 3 1979 1980
Du Ponte Dow Chemical Union Carbide' Monsanto W. R. Graces
3,412.3 2,522.7 2,370.9 1,548.6 1,541.4
176.6 171.2 149.9 23.2 86.7
5 9 4 1 13
-34 -20 -16 -61 47
5.1 6.8 6.3 1.5 5.6
Allied Chemical* American Cyanamid Celanese Diamond Shamrock PPG Industries
1,364.1 837.0 803.0 769.1 753.7
73.0 32.6 25.0 56.3 39.7
45 5 -1 34 -4
40 -25 -44 6 -31
3.9 3.1 7.3 5.3
B. F. Goodrich Hercules Williams Cos. International Minerals' Olin
749.9 624.0 574.1 499.5 483.4
10.0 26.9 52.3 35.9 27.2
-59 -33 96 -2 -1
Î3
Rohm & Haas Ethyl CorpJ Stauffer Chemical Air Products Pennwaltk
467.1 440.5 357.1 356.9 292.4
27.0 24.1 20.0 26.9 10.9
7 3 16 8
Akzona Lubrizol Texasgulf ' Reichhold Chemicals Thiokol
244.4 243.1 240.6 213.2 153.2
1.4 29.5 59.1 0.2 7.7
Nalco Chemical Freeport Minerals International Flavors Mallinckrodt Liquid Airm
150.2 147.6 123.4 109.4 103.3
17.6 29.8 19.0 9.1 6.4
First Mississippi Petrolite Crompton & Knowles Beker Industries Loctite
95.1 64.6 61.1 57.5 51.7
Virginia Chemicals Stepan Chemical Essex Chemical Great Lakes Lawter Chemicals Total 20 largest companies0 Total 20 other companies0 GRAND TOTAL0
FIRST-HALF 1980 Change from 1979 Sales Earnings Earnings Sales ( $ millions)
8.3 9.3 7.8 3.9 4.4
6,980.2 5,332.2 4,936.5 3,371.1 2,905.5
421.0 401.7 369.8 187.4 151.9
11% 22 11 7 15
-18% 3 11 -15 53
U5 5.4 5.6 9.2 7.4
2,748.3 1,667.0 1,650.0 1,524.5 1,550.0
141.2 70.6 61.0 112.6 94.4
54 8 6 41 3
59 -16 -21 36 -12
3^3 6.8 5.1 8.3 5.8
1,520.0 1,269.0 1,053.9 959.0 958.7
30.0 60.6 87.4 82.9 49.2
Î
4.3 9.1 7.2 5.6
11 11 18 5
^40 -21 155 20 10
~1 -8 -20 8 -22
5^8 5.5 5.6 7.6 3.7
6Λ 6.4 7.2 8.1 5.2
902.8 879.1 940.0 734.1 595.2
54.2 45.3 89.7 61.2 23.2
"TÏ 12 11 21 12
^2 -4 3 24 -3
3 28 18 -6 5
-71 30 83 -97 -7
06
2Â
12.1 24.6 0.1 5.0
12.0 15.9 2.6 5.7
537.6 466.3 520.6 449.5 308.1
6.8 58.4 136.7 4.4 17.3
8 33 38 4 10
^5Z 45 137 -48 11
ÏÔ 20 10 9 6
13 18 6 11 -9
11.7 20.2 15.4 8.3 6.2
11.4 20.7 16.1 8.2 7.2
297.6 304.0 245.2 221.4 210.2
33.8 65.1 37.3 18.1 14.6
9 33 15 12 20
8.8 6.9 2.4 5.7 6.0
35 34 -3 18 11
76 50 26 307 -8
9.3 10.7 3.9 9.9 11.6
TA 9.6 3.0 2.9 14.0
137.2 124.1 122.9 132.0 102.4
13.3 12.1 4.5 16.5 12.3
~~29 37 0 35 17
90 44 41 650 0
37.8 37.6 37.5 27.2 19.5
0.0 1.4 1.3 3.9 3.1
12 3 16 -12 17
-99 -25 -28 -12 13
ÔÏ
il
3.7 3.5 14.3 15.6
6.5 5.6 14.5 16.3
78.0 77.0 70.9 61.6 39.7
1.5 2.0 2.1 9.3 6.3
17 8 16 1 18
-41 -32 6 13
$20,768.1 $2,218.0 $22,986.1
$1091.0 $219.4 $1,310.4
$42,476.9 $4,506.3 $46,983.2
$2591.0 $468.6 $3,059.6
Ô 6 9 14 2
ÏÔ
8% 11% 9%
-16% 22% -12%
£1
5.2% 9.9% 5.6%
6.8% 9.0% 7.0%
14% 18% 15%
9~ 43 11 15 22
^δβ
2% 41% 7%
a After-tax income as percentage of sales, b For 12 months ending second-quarter 1980. c Fully diluted before nonrecurring items and extraordinary charges for continuing operations, d As of July 3 1 . e Excludes nonrecurring charge of $35.1 million in second-quarter 1979. f Excludes $217.3 million gain for accounting changes in first-quarter 1980. Since previous quarters were not restated, 12-month profit margins are not comparable. 12-month earnings per share and price-earnings-ratio for Union Carbide are approximate, g Grace had $3.5 million nonrecurring loss in second-quarter 1980 and $2.0 million gain in second-quarter 1979 on divestments, h Allied Chemical had $12.7 million charge against earnings in second-quarter 1979. i International
the economy continues to slow, profit gains in the third quarter will become increasingly difficult." And at Stauffer Chemical, chair man H. Barclay Morley says there will be continued depressed demand in U.S. chemical operations this year. Even though Stauffer's fourth quar ter is expected to benefit from sea sonal foreign and domestic ship ments, the uncertain length and depth of the recession make it diffi 10
C&EN Aug. 11, 1980
cult to forecast overall results for the year, according to Morley. Fibers continued to suffer during the quarter, and plastics suddenly took a downturn. For example, Cel anese showed a loss of 10 cents a share in its U.S. nylon and polyester busi ness, but this was buffered somewhat by gains in cellulosics and non-U.S. fibers. Monsanto had a $41.4 million loss in operating income in textiles for the quarter, although this was less
than half the $91.5 million loss shown in the second quarter last year. Producers are hesitant to predict a turnaround in fibers. Edward L. Hennessy Jr., Allied Chemical's chairman, says that he does not ex pect significant improvement in the fibers market this year. Plastics suffered perhaps even more than fibers on a percentagedecline basis. B. F. Goodrich, the country's largest producer of polyvi-
"
Profit margin
3
STOCK MARKET DATA d
12-MONTH RUNNING DATA b
FIRST-Η1ALF 1980
Change from 1979 Sales Earnings
Earnings per share c
Profit margin 3 1980 1979
Recent 12 months
Stock price
1980
Ϊ979"
6.0% 7.5 7.5 5.6 5.2
8.2% 8.9 7.5 7.0 3.9
15 30 13 14 18
-7 17 34 -26 51
6.6 7.8 6.7 4.5 4.8
8.1 8.7 5.7 6.9 3.8
1.19 0.94 2.25 0.64 1.80
5.88 4.10 10.40 7.90 5.42
5.1 4.2 3.7 7.4 6.1
5.0 5.4 5.0 7.6 7.1
61 11 12 39 6
41 -5 -14 32 2
4.3 4.7 3.9 7.4 6.6
4.9 6.5 5.0 7.9 6.9
2.02 0.68 2.93 1.03 1.21
6.92 3.17 9.67 3.89 6.31
511/4
2.0 4.8 8.3 8.6 5.1
3Λ 6.7 3.6 8.5 4.9
8 15 19 21 7
-35 -7 248 24 -3
1.9 5.2 6.3 8.3 4.1
3.1 6.5 2.2 8.2 4.6
0.57 1.38 1.92 1.34 1.13
3.32 3.67 4.49 7.40 3.20
21% 35 1 / 4
6.0 5.2 9.5 8.3 3.9
6.8 6.1 10.3 8.1 4.5
18 15 13 21 16
26 5 1 26 -2
5.9 5.4 8.5 8.2 4.1
5.5 6.0 9.6 7.9 4.8
2.10 1.17 0.45 0.95 1.06
7.63 4.65 3.10 4.04 4.61
1.3 12.5 26.3 1.0 5.6
2.9 11.5 15.3 2.0 5.5
14 29 32 10 7
8 31 148 -43 21
2.4 12.7 22.7 0.9 6.7
2.5 12.5 12.1 1.8 5.9
0.12 1.52 1.58 -0.08 0.66
1.37 5.61 5.60 0.75 3.18
4 1 y8
11.4 21.4 15.2 8.2 6.9
11.3 20.0 15.7 7.9 6.8
14 47 13 11 21
11 85 9 17 7
11.0 21.0 14.8 8.2 5.3
11.3 16.7 15.3 7.9 6.0
0.88 0.95 0.52 0.92 0.60
2.6 9.4 2.9
ëTê
9.7 9.8 3.7 12.5 12.0
9.3 2.6 2.2 14.1
36 24 2 31 23
349 16 26
11
8.7 8.7 3.6 10.4 13.0
1.9 2.6 3.0 15.1 15.8
5.4 4.8 5.1 14.3 16.5
19 14 17 19 18
-57 -25 19 -34 15
1.5 2.6 15.4 2.8 15.9
16% 19% 16%
9% 51% 14%
6.0% 10.4% 6.5%
6.8% 8.7% 7.0%
η
|
Dividend yield, % of price
7 9 4 7 8
4.7 4.4 7.3 6.5 5.3
7 9 5 8 6
4.3 5.7 6.8 5.1 6.1
41 20%
7 5 8 6 6
7.1 6.2 3.1 5.7 5.0
47% 31% 19% 45 29%
6 7 6 11 6
4.9 4.8 6.0 1.8 7.4
ioy4 11% 52%
7 12 7 15 17
7.8 2.7 3.9 4.3 3.0
3.21 4.64 1.79 3.55 2.74
40% 47 23% 36% 26%
13 10 13 10 10
4.0 2.1 3.9 3.3 5.3
2.35 3.26 3.67 2.35 2.53
40% 65 23 15% 34%
17 20 6 7 14
1.2 1.9 5.2
14.4
1.02 1.17 1.07 0.49 0.61
4.1 3.9 15.1 5.1 16.7
0.01 0.76 0.56 0.56 0.27
0.80 1.69 2.38 1.64 1.03
13% 17% 47%
17 10 20 7 11
5.1 5.3 0.8 6.7 5.1
η
6.1% 9.9% 6.4%
2nd qtr
Price-earnings ratio July 3 1
43 36 1 / 2
43% 55% 43%
28 53 31% 35% 19 1 / 4
66%
11% 11%
— 1.6
6.4% 7.8% 6.6%
Minerals had net charge $4.3 million in second quarter, j Ethyl had $6.8 million charge in second-quarter 1980 and $7.3 million nonrecurring gain in first quarter, k Pennwalt had $2.6 million nonrecurring gain in second- quarter 1979. I Texasgulf had $4.1 million gain in second-quarter 1980 from change in accounting methods, m Liquid Air had $2 million gain in second quarter on sale of assets, η Deficit, c Averages except for sales and earnings.
nyl chloride resin, says that following the precipitous decline in new hous ing starts and other construction ac tivity, U.S. industry shipments of PVC declined 30% compared to the first quarter. Carbide's plastics sales declined 3% for the quarter. Although not disclosed, the earnings decline probably was much larger because of higher raw material costs. At Monsanto, sales of plastics and resins declined 15.8% during the
quarter from the same period a year ago. Operating (pretax) income dropped to a loss of $13.3 million this year from $9.7 million last year. The one remaining semibright spot for the chemical industry thus far seems to be foreign business. Car bide's Sneath says that foreign sales were up 13% for the quarter. G. J. Williams, financial vice president at Dow, comments that Latin America and some countries in Europe are
I I I
showing continued strength. And at Loctite, E. Russell Eggers, president and chief executive officer, says that strong growth in Loctite's interna tional sales and earnings did much to cushion the impact of the developing recession in the U.S. Good non-U.S. business also was helpful for some of the more diversi fied U.S. chemical producers in the second quarter. For example, NL In dustries says that European and CaAug. 1 1 , 1980 C&EN
11
Earnings jump again at oil companies but not at diversified chemical producers FIRST-HALF 1980
2ND-QUARTER 1980 % chemical sales
Sales Earnings ( $ millions)
Change from 1979 Earnings Sales
8
Profit margin 1979 1980
Sales Earnings ( $ millions)
Change from 1979 Sales
OIL AND GAS COMPANIES Exxon Mobil" Texacob Standard Oil of California Standard Oil (Ind.)
8% 3 3 3 10
Gulf Oilb Atlantic Richfield Shell Oil Conoco Phillips Petroleum
$2,955.0 1,533.0 1,103.5 1,162.0 1,064.2
4.8 7.0 8.1 7.2 9.8
14,556.0 11,075.9 9.693.0 9,000.0 6,610.0
759.0 860.9 780.0 578.0 499.3
25 53 50 55 57
5.8 8.2 5.4 16.1 7.1
5.7 6.7 4.7 11.2 6.9
6,517.0 6,100.0 6,345.2 5,500.0 5,127.0
364.0 498.3 439.0 902.0 347.7
27 24 56 57 41
74 -5 40 -85 14
9.2 2.3 5.9 0.7 5.8
12.1 2.8 5.4 5.4 6.8
4,912.0 4,121.0 3,986.3 1,952.9 1,634.6
469.0 95.1 277.1 40.9 96.7
119 25 39 45 31
24% 64 49 40 39
3.9% 4.5 4.0 5.0 6.7
4.5% 3.9 4.0 5.5 7.6
370.0 434.8 407.0 249.6 214.8
11 51 44 57 45
27 67 47 16 0
5.4 7.7 8.3 5.3 6.7
3,201.0 3,000.0 2,998.6 2,800.0 2,751.4
186.0 247.0 161.1 451.3 194.8
18 20 34 56 47
22 48 52 124 52
2,643.3 2,121.8 1,814.3 924.5 854.2
243.1 47.7 107.0 6.1 49.6
130 17 27 23 32
$1,030.0 688.0 502.9 535.0 488.2
9 10 16 6 20
6,800.0 5,642.2 4,895.0 4,700.0 3,230.0
Tenneco Sun Co. Occidental Petroleum Standard Oil (Ohio) Union Oil
13 3 22 5 11
Getty Oil Ashland Oilb Cities Service El Paso Kerr-McGee
3 13 8 11 16
44% 46 53 51 52
$53,877.0 30,600.0 25,788.0 21,096.0 13,742.5
41% 43 47 53 57
$26,223.0 15,300.0 12,539.0 10,649.0 7,291.0
DIVERSIFIED MANUFACTURERS Engelhard Minerals General Electric U.S. Steelb Eastman Kodak Goodyear
1 2 9 20 12
6,684.4 6,200.0 3,100.0 2,130.7 2,071.3
139.1 402.6 111.5 272.5 43.1
74 10 -14 18 -3
136 5 -26 22 -19
2.1 6.5 3.6 12.8 2.1
1.5 6.8 4.2 12.4 2.5
12,619.0 12,080.0 6,300.0 4,267.7 4,094.8
280.5 744.1 222.7 488.4 93.8
89 13 -6 24 -1
Esmark 3M Aluminum Co. of America" Firestone" Borden
8 15 9 13 34
1,772.2 1,518.0 1,290.6 1,286.1 1,276.3
26.0 157.3 121.5 -3.0 39.7
4 13 9 -5 14
11 -3 0 c 8
1.5 10.4 9.4 c 3.1
1.4 12.0 10.4 2.4 3.3
3,424.9 3,012.0 2,593.1 2,463.3 2,346.4
47.4 324.6 265.0 -16.8 70.3
6 14 9 -4 13
Georgia-Pacific Kaiser Aluminum FMC Pfizer Northwest Industries
10 14 34 14 7
1,197.0 939.0 875.7 734.5 684.5
55.0 82.2 39.3 57.6 31.6
-11 17 3 8 7
-42 38 -10 3 -30
4.6 8.8 4.0 7.8 4.6
7.1 7.4 5.1 8.3 7.0
2,422.0 1,689.1 1,749.1 1,444.6 1,341.8
105.0 155.7 80.1 123.0 62.1
-1 12 8 10 9
Merck Borg-Warner North American Philips" Martin Marietta Eli Lilly
16 22 14 12 21
674.8 669.6 656.4 643.8 599.9
114.9 31.5 16.3 58.8 78.3
13 -6 6 23 8
11 -27 -19 9 -10
17.0 4.7 2.5 9.1 13.1
17.2 6.1 3.3 10.3 15.7
1,329.8 1,349.0 1,248.8 1,210.9 1,317.5
220.9 67.4 32.3 93.3 194.7
14 1 7 26 12
Uniroyal Dart Industries" General Tire National Distillers" NL Industries"
23 26 21 37 30
593.2 565.5 529.9 512.7 510.3
-2.6 44.9 6.9 29.6 39.8
-18 -9 -12 -1 11
c 7 -79 -3 36
c 7.9 1.3 5.8 7.8
c 6.7 5.4 5.9 6.4
1,173.4 1,125.0 1,043.3 1,071.2 1,016.0
-14.7 81.1 -4.4 72.7 76.3
-18 -6 -7 1 16
a After-tax income as percentage of sales, b Excludes major nonrecurring earnings; Mobil—$459 million in first-quarter 1980; Texaco--$402 million in first-quarter 1980; Gulf Oil—$100 million in second-quarter 1980; Ashland Oil—$345.1 million in second-quarter 1979. $3.4 million loss in first-quarter 1979; U.S . Steel—,514.8 million in first-quarter 1980 and $90.4 million in first-quarter 1979; Alcoa—$27.3 million in second-quarter 1979 and $12.3 million in second-quarter 1979; Firestone—-$49 million charge in second-quarter 1980; North American Philips—$3.6
12
C&EN Aug. 11, 1980
Petrochemical earnings at leading oil companies join the slide True to their roller-coaster profits tradition, petrochemicals magnified the earnings downsweep in the U.S. chemical industry in the second quarter. While worldwide after-tax earnings at the largest basic chemical companies fell 1 2 % in the quarter from secondquarter 1979, combined after-tax earnings for petrochemicals at seven major oil companies sank 2 5 % . Petrochemical earnings still managed an overall 14% gain for the first half of 1980 over first-half 1979 at these companies, and the reduced earnings of the second quarter still kept a fairly healthy profit margin on sales. However, the direction was clear, and bad. Since leading petrochemical prices have suffered further discounts in the third quarter, and since foreign economies are rapidly joining the U.S. recession,
$ Millions
Conoco Exxon Gulf OH Mobil Shell Oil Standard Oil (ind.) Texaco TOTAL
1980
AFTER-TAX EARNINGS Second quarter 1979 % change 1980
C&ENAug. 11, 1980
First half 1979
% change
$ 18.2 107.0 56.0 26.0 54.0 46.1 9.1
$ 23.8 127.0 75.0 34.0 59.0 77.2 23.5
-24% -16 -25 -21 -8 -40 -61
$ 43.7 269.0 127.0 62.0 77.0 105.3 39.2
$ 37.3 217.0 114.0 59.0 73.0 90.6 40.8
17% 24 11 5 5 16 -4
$316.4
$419.5
-25%
$723.2
$631.7
14%
nadian titanium pigment results were the main reason for a 12% year-toyear earnings gain in its chemical operations. However, N L adds t h a t overall demand weakness in chemicals late in the quarter probably will reduce its chemical earnings in t h e second half of 1980. A few other solid increases in chemical earnings dot t h e generally negative reporting of other diversified companies on chemical operations. One of these was Uniroyal, which is under financial siege in its tire operations. Chemicals at Uniroyal increased their operating (pretax) profit 16% in the second quarter from a year ago on a 9% sales gain. Another example might be Eastman Kodak's chemicals division, which had a 14% sales increase led by fibers and plastics in t h e second quarter from second-quarter 1979. However, E a s t m a n K o d a k says nothing about chemical earnings. At other companies, widespread reports of second-quarter earnings weakness in polymers indicate t h a t gains in sales didn't necessarily make it to t h e bottom line. For example, National Distillers, in explaining a drop in its chemical earnings for t h e second quarter from a year ago, 14
petrochemical earnings' plunge probably will continue for a while. "Declines occurred both in the U.S. and abroad as a result of softer margins and lower sales volume," says C. C. Garvin Jr., chairman of Exxon, about second-quarter petrochemical earnings. Exxon is the leading petrochemical producer and ranks third among all U.S. chemical producers behind Du Pont and Dow Chemical. "In the U.S., where second-quarter earnings were only one half those of the first quarter, [physical] sales volume was 16% lower." On first-half petrochemical performance, Garvin notes Exxon's 2 4 % earnings improvement over first-half 1979. But that was thanks to good earnings outside the U.S. "Foreign earnings were up 7 3 % from improved margins. Margins also were higher in the
mentions "substantial volume declines for all major products" and "increased petrochemical raw materials costs." More specifically, Distillers adds, "Selling prices for the important polyethylene products weakened late in the quarter, and this trend is continuing." Distillers also says that low operating rates and sporadic operations at its new synthesis-gas-based complex outside Houston hurt earnings. Distillers and partner Du Pont have been starting up units at this complex over the past year. The end markets most responsible for trouble in polymers and other chemical products in the second quarter were the familiar hardpressed durables—autos and housing. A typical comment comes from Borg-Warner chairman James F. Bere, who says the company's first year-to-year earnings decline in five years came in the second quarter at the hands of poor transportation and housing markets. At Georgia-Pacific, chairman Robert E. Flowerree says, "We've had some weakness in chemicals associated with the construction industry, like thermosetting resins and some of their feedstocks, as well as polyvinyl
U.S., but the earnings effect was more than offset by increased operating expenses; earnings in the U.S. declined 1 7 % . Worldwide [physical] sales volume of chemical products declined 3%." Conoco's second-quarter report also complains of lower chemical sales volumes. At Gulf Oil, the comment is that U.S. product prices and sales volumes for major petrochemicals and plastics eroded sharply in June as the recession deepened. Bits of product data from companies hint the severity of the physical volume drop. For example, Cities Service says that its sales of petrochemical intermediates were about 235 million lb in the second quarter, down 14% from second-quarter 1979 and down 2 8 % from first-quarter 1980. Gulf Oil says that its worldwide chemical sales were 3.1 billion lb in the second quarter of 1980, off 9 % from both second-quarter 1979 and first-quarter 1980. Even so, petrochemical profitability was still respectable in the second quarter, a few other company reports indicate. For example, Shell Oil's chemical segment income (after taxes but before corporate overhead) was 7 . 1 % of chemical revenues in the second quarter although down from 9.0% a year ago.
chloride resin." However, he says, "Other chemical lines such as methanol and ammonia are running at capacity with excellent demand and firm prices." Georgia-Pacific's luck with agriculturally oriented ammonia was shared by some other diversified chemical producers such as Kaiser Aluminum & Chemical in the agricultural market sphere. But more reports of earnings damage in this area are cropping up. For example, Eli Lilly says that sales of its Treflan herbicide declined in the second quarter from a year ago because of adverse weather and lower acreage in some parts of the U.S. and Canada. At Northwest Industries, operating (pretax) earnings fell 79% at pesticides-producing Velsicol, its chemical segment, in the second quarter from a year ago. FMC also says earnings and sales fell in agricultural chemicals from second-quarter 1979. Hence, agriculture, a formerly safe earnings haven, has joined durables and other markets as a trouble spot for many companies. For the future, the third quarter is too early for any earnings relief as may be the fourth. Rates of decline appear to be easing, but recovery is not yet in sight. D
