NEWS OF THE WEEK
CHEMICAL EARNINGS: Third quarter shows strong gains The third quarter was finally a good one for the U.S. chemical industry. In terms of year-to year earnings gains, the industry probably did better than at any time since early 1979. This still does not bring the industry back to prerecession levels, but it is on the way. The third-quarter earnings jump also leaves the cumulative total for 1983 below 1982. However, a likely strong finish in the fourth quarter will move it ahead of last year. Almost all of the 20 major chemical companies surveyed by C&EN increased their earnings in the third quarter over the year-before quarter. Only three—W. R. Grace, National Distillers, and Stauffer Chemicalposted earnings declines. Stauffer is the only one to record a loss for
the quarter, but it was enough of a loss—$42.5 million—to put it into the red for the first nine months of the year. For the quarter, the 20 companies surveyed increased earnings an average of 37% from third-quarter 1982 to a combined $598 million. Sales for the 20 companies grew 7% to total $15.0 billion. The greater gain in earnings indicates that efficiency steps taken by the companies over the past three years are sharply boosting profitability. Profit margins (after-tax income as a percentage of sales) for the 20 companies rose to 4.0% in the third quarter, compared to 3.1% in the third quarter last year. This is, however, still a far cry from the heady days of 1979, when margins
hit a high of 7.0% for U.S. chemical companies. In spite of the dramatic earnings increase in the third quarter, cumulative earnings for the year trail 1982. For the first three quarters, earnings for the 20 companies totaled $1.17 billion, 7% less than the $1.85 billion total through the first nine months of last year. Cumulative sales for the 20 companies, however, are running about even with last year's nine-month period, hitting a total of $44.3 billion. Thus, profitability for these companies for the first nine months continues to be less than last year's, with profit margins averaging 3.9%, compared with 4.2% through the same period in 1982. The largest earnings gain for the
Chemical earnings are on the increase at almost all companies NINE-MONTHS 1983
THIRD-QUARTER 1983 Sales
Earnings 8
($ millions)
Air Products American Cyanamid Celanese Chemed Crompton & Knowles
Changes from 1982
Profit margin b
Sales
Earnings
1983
Ï982"
9% 52 def 23 87
7.1% 4.6 4.1 7.1 2.1
6.5% $1246.1 2612.2 3.1 2411.0 def 192.9 6.1 171.5 1.2
81.1 111.2 60.0 13.3 4.6
Earnings 8 Changes from 1982 Sales Earnings ($ millions)
Sales
4% 0 3 2 6
1% 19 200 2 70
Profit margin b 1983 1982
6.5% 4.3 2.5 6.9 2.7
6.7%
I
3.6 0.9 6.9 1.7
|
2.6
I
$ 416.2 889.5 811.0 67.3 56.3
$29.4 41.1 33.0 4.8 1.2
0% 3 14 5 8
Dow Chemical Ethyl Freeport-McMoRan W. R. Grace Hercules
2762.0 449.4 194.7 1506.0 670.0
86.0 30.0 26.6 28.1 43.8
8 9 5 4 5
146 30 35 -37 58
3.1 6.7 13.7 1.9 6.5
1.4 5.6 10.6 3.1 4.4
8028.0 1293.2 585.1 4465.7 1985.0
233.0 79.1 67.1 101.7 124.0
0 5 5 -2 -1
12 16 9 -49 62
2.9 6.1 11.5 2.3 6.2
Lubrizol Monsanto National Distillers Olin Pennwalt
201.7 1553.0 632.1 486.3 247.3
15.2 99.0 11.5 13.0 13.8
0 3 41 12 6
28 39 -26 16 89
7.5 6.4 1.8 2.7 5.5
5.9 4.7 3.5 2.6 3.1
601.1 4648.0 1882.4 1449.7 731.7
44.7 303.0 36.9 59.6 26.9
-4 -4 37 3 0
9 -1 -29 5 10
7.4 6.5 2.1 4.1 3.7
6.6 6.3 4.0 4.0
PPG Industries Reichhold Chemicals Stauffer Chemical Union Carbide Williams Cos.
930.0 194.7 285.8 2274.1 381.6
69.6 5.5 -42.5 80.6 8.0
11 2 1 5 0
59 400 def 14 def
7.5 2.8 def 3.5 2.1
5.2 0.6 5.0 3.3 def
2720.0 568.0 941.2 6645.7 1143.7
164.6 16.3 -22.5 190.2 19.1
10 -7 -23 -2 -14
45 99 def -32 -24
6.1 2.9 def 2.9 1.7
4.6 1.3 9.3 4.1 1.9
5.5 11.1 4.4 3.8
3.3
a Earnings from operations, excluding extraordinary and nonrecurring items totaling more than 10% of quarterly earnings b After-tax income as per cent of sales, def = deficit.
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October 31, 1983 C&EN
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third quarter, barring companies that went from deficits to profits, was at Reichhold Chemicals. Reichhold's earnings from continuing operations increased 400% from thirdquarter 1982 to $5.5 million. However, the earnings gain weighing most in the industry totals was from Dow Chemical, whose profits rose 146% to $86.0 million. Without Dow, the overall increase would have been just 27.5%, almost 10 percentage points lower. Dow's president and chief executive officer, Paul F. Oreffice, says, "We have come a long way from the dismal economic conditions that the chemical industry faced only a year ago. Even though the ninemonth earnings are lagging 1982, our core businesses are in far better shape versus third-quarter 1982 and we expect continued improvement." Earnings from operations at Dow, excluding extraordinary items, are 12% ahead of 1982 through the first three quarters. Another company happy with the chemical economy is Celanese, whose chairman, president, a n d chief executive officer, John D. Macomber, says, "The U.S. economic expansion is continuing, and domestic demand has picked up for our chemicals, fibers, and specialty products in the automotive, housing, and other industries. We achieved a profit this quarter for the first time in a year." A "we are pleased" comment also comes from Du Pont chairman Edward G. Jefferson, w h o at C&EN press time disclosed a 60% earnings jump for the company in the third quarter from 1982. Du Pont's chemical earnings more than doubled on an 11% physical volume increase. Its chemical plants ran at 72% of capacity, u p from 67% in thirdquarter 1982 and 62% in early 1983. All told, the economic improvement bodes well for the chemical industry this year. Although total profits are still not fully recovered, another big gain in the fourth quarter should do the trick. Such a gain is in the bag, since the comparison will be with the worst recession quarter of 1982. And unless the general U.S. economy falls apart, a banner year is in store for the chemical industry in 1984. D
Senate kills Clinch River breeder reactor The rollercoaster career of t h e Clinch River breeder reactor project is finally over. The Senate, which has been keeping the project alive for years, voted last week to delete the $1.5 billion earmarked for the project from the fiscal 1984 supplemental appropriations bill. The House, where opposition to t h e project is intense, didn't even bother to consider funding it this year. The reactor, to be sited on the Clinch River in southeastern Tennessee, was aimed at demonstrating the liquid-metal fast breeder reactor, which would produce more plutonium fuel than it used while generating electricity. The electricity was to be supplied to the Tennessee Valley Authority. The project has been plagued by cost overruns for years and there
have been recent assertions that its technology is by n o w outdated. When the demonstration reactor was first authorized in 1971, the cost was put at $400 million, with more than half to be supplied by electric utility companies. The most recent cost estimate is $4.5 billion, with utilities expected to provide $1 billion, which they have seemed reluctant to do. The Department of Energy seems to have bowed to the inevitable, saying that it is disappointed with the vote but will begin an orderly termination of the project on which $1.7 billion already has been spent for design and engineering work, excavation, and some major components. DOE estimates that closing the project down will cost $150 million to $350 million. D
Quality of science students may have improved The quality of science and engineering students—both undergraduate and graduate—seems not to have changed much over the past five years, and there is some indication the quality may have improved. That's the overall impression from a survey of senior academic officials conducted for the National Science Foundation by the American Council on Education. Judgments of quality were obtained from a sample of 486 institutions with four-year undergraduate programs and 383 with graduate programs. No attempt was made to distinguish between science and engineering students or between stu-
dents in various science or engineering fields. Specifically, 60% of those officials queried reported "no change" in quality of undergraduate or graduate s t u d e n t s . Most of t h e rest, however, expressed views indicating improvement, with 25% saying "significant improvement" among science and engineering undergraduates and 15% saying "significant decline." For graduate students, 28% of the graduate deans surveyed saw an improvement in quality and only 12% reported declines. The survey asked for subjective judgments, but it did ask also for the officials to provide the bases for
Graduate deans rate five-year change in applicant quality
Type of institution
No significant change
Significant improvement in a few Overall fields
All institutions
60%
10%
Doctorate granting
59
11
18% 16
Significant decline In a few Overall fields 6% 5
6% 9
Nondoctorate granting
61
9
20
7
2
Publicly controlled
58
13
Privately controlled
63
5
17 21
6 5
6 6
50 largest science/engineering doctorate
61
6
21
4
9
Note: Opinions of graduate deans about change in quality of applicants for graduate study in science/engineering fields over the five years to 1982. Sources: National Science Foundation, American Council on Education
October 31, 1983 C&EN 5
