BUSINESS
Chemical Producers Post Another Big Earnings Gain in Second Quarter George Peaff, C&EN Northeast News Bureau hemical companies posted another outstanding earnings performance in this year's second quarter, although the year-to-year gain was not as robust as those in the previous two quarters. That could signal a slowdown in the chemical economy, mimicking a general softness in the overall U.S. economy. A group of 30 major chemical firms regularly tracked by C&EN reported earnings in the second quarter totaling $2.53 billion, up an average of 63% from
C
last year's second quarter. That growth in earnings admittedly is lower than the 89% and 85% surges in first-quarter 1995 and fourth-quarter 1994, respectively, but represents strong growth nonetheless. In third-quarter 1994, the 30 firms had a combined earnings growth of 60%. Sales for the 30 chemical firms finished at $23.8 billion in the second quarter, up 19% from second-quarter 1994. Average profit margin for the companies was 10.6%, up significantly from the 77% average in last year's second quarter. In first-quarter 1995, average profit margin was 9.8%. Meanwhile, 12 oil and gas companies,
boosted mainly by significant earnings strength in their petrochemical segments, posted an 84% annual growth in second-quarter earnings. Earnings reached $4.6 billion on a 14% sales increase to $90.4 billion. The oil companies achieved an average profit margin of 5.1% in the quarter, versus just 3.2% in last year's second quarter. Earnings for 12 diversified manufacturers with significant chemical enterprises rose 23% in the second quarter to $2.12 billion. Sales increased 11% to $25 billion. Their average profit margin for the quarter was 8.5%, versus 7.6% in last year's second quarter.
Chemical industry leaders for the second quarter... Earnings3
Sales Rank 1995
1 2 3 4 5 6 7 8 9 10
$ Millions
Rank 1994
Dow Chemical $5,517.0 1 Monsanto 2,482.0 2 Union Carbide 1,541.0 4 Eastman Chemical 1,321.0 5 Arco Chemical 1,149.0 8 Rohm and Haas 1,042.0 6 Air Products 982.4 7 W.R. Grace 932.3 3 Morton International 828.5 9 Praxair 788.0 12
Profitability Earnings as Rank % of sales 1994
Rank $ Millions 1994
$672.8 Dow Chemical 290.0 Monsanto 228.0 Union Carbide 158.0 Eastman Chemical 150.0 Arco Chemical 93.0 Air Products 87.0 Rohm and Haas 79.1 Hercules 78.5 Great Lakes Chemical 75.7 International Flavors
2 1 5 4 6 8 3 11 7 10
International Flavors Georgia Gulf Union Carbide Lubrizol Arco Chemical Hercules Dow Chemical Great Lakes Chemical Eastman Chemical Loctite
19.2% 18.4 14.8 14.0 13.1 12.9 12.2 12.2 12.0 12.0
1 10 18 8 13 12 23 2 15 4
• . . and for first six months olfi995 Earnings3
Sales Rank 1995
1 2 3 4 5 6 7 8 9 10
$ Millions
$1,238.4 2 Dow Chemical 519.0 1 Monsanto 458.0 6 Union Carbide 290.0 4 Eastman Chemical 276.0 11 Arco Chemical 183.0 3 Rohm and Haas 182.0 5 Air Products 159.5 8 Morton International 149.7 10 Hercules* 146.8 7 Great Lakes Chemical
Note: Data are based on 30 chemical companies listed on Dage 22. a After taxes.
20
AUGUST 21,1995 C&EN
Earnings as Rank % of sales 1994
Rank $ Millions 1994
Rank 1994
Dow Chemical $10,722.0 1 Monsanto 4,800.0 2 Union Carbide 2,994.0 4 Eastman Chemical 2,553.0 5 Arco Chemical 2,290.0 8 Rohm and Haas 2,027.0 6 Air Products 1,965.3 7 W.R. Grace 1,785.7 3 Morton International 1,749.5 9 Olin 1,569.8 11
Profitability
International Flavors Georgia Gulf Loctite Union Carbide Lubrizol Arco Chemical Great Lakes Chemical Nalco Chemical Dow Chemical Hercules
19.0% 18.8 16.4 15.3 13.0 12.1 12.1 11.7 11.6 11.5
1 13 3 18 8 15 2 7 24 11
Chemical industry 1995 second-quarter results • • • • •
Sales climbed 19% Earnings rose 63% Profit margin was 10.6% Production increased 3.6% Prices jumped 11.2%
Sales
Earnings
% change from year- earlier quarter 25
% change from year-earlier quarter 90 80
20
70 60
15
50 40
10 30 20
5
10 0
0 1993
Profit margin
1994
1995
1993
1994
1995
After-tax earnings as % of sales
Production % change from year-earlier quarter
% change from year-earlier quarter
12
8
12
Prices
10
10 6
8
8 6 6
4 4
4 2
2 2
0
0
-2
0 1993
1994
1995
1993
1994
1995
1993
1994
1995
Note: All sales, earnings, and profit-margin data are based on 30 chemical companies listed on page 22.
For 10 pharmaceutical companies reg- $1.24 billion. With the sale of Marion ularly surveyed, second-quarter earn- Merrell Dow to Hoechst in the second ings increased 10% from the year-earlier quarter, Dow Chemical began treating period to $3.57 billion on a 19% sales in- the drug segment as a discontinued opcrease to $23.9 billion. The average profit eration when reporting its current finanmargin for these companies dropped to cial data. 15% from 16.2% a year earlier and 16.5% "We experienced a significant turnin this year's first quarter. around in sales and profits in Europe, Dow Chemical, Union Carbide, Geor- while the U.S. showed excellent perforgia Gulf, and Arco Chemical, all down- mance in the quarter," says Enrique C. stream petrochemical producers, led the Falla, executive vice president at Dow 30 chemical companies in earnings Chemical. "While there is a softening in growth. Dow's second-quarter earnings some markets reflecting inventory adclimbed to $673 million, a 225% jump justments, Dow will continue to enjoy from the year-earlier quarter. For the strong results for the year as we remain year's first half, Dow Chemical's earn- focused on our strategy for value growth ings rose 257% over first-half 1994 to and our commitment to cost reduction."
Union Carbide also reported a strong second quarter, as earnings rose 212% from a year earlier to $228 million. For the first half, earnings grew 237% to $458 million. The company cited higher prices and demand for key products as the driver behind its earnings improvement, despite some weakening of polyethylene prices in June. Georgia Gulf posted an earnings rise of 155% to $50.8 million in the second quarter, and for the first half, earnings climbed 239% to $111 million. Although during the quarter the price for methanol dropped, as did the sales volumes for vinyl resins and compounds, the company says aromatic and electroAUGUST 21, 1995 C&EN
21
BUSINESS
Earnings were up 63% for 30 major chemical companies, sales rose 19% FIRST-HALF 1995
SECOND-QUARTER 1995 Sales
Earnings8
($ millions)
Air Products Albemarle Arco Chemical Betz Laboratories Cabot
$
Change from 1994 Sales
982.4 $ 93.0 319.7 12.5 150.0 1,149.0 19.9 188.9 47.0 494.8
13% 18 39 5 15
Profit margin6
Sales
Earnings8
Change f rom 1994 Sales
($ millions)
1995
1994
12% -18 121 5 114
9.5% 3.9 13.1 10.5 9.5
9.6% $ 1,965.3 $ 182.0 27.1 632.9 5.7 2,290.0 276.0 8.3 38.7 366.8 10.5 93.4 976.1 5.1
Earnings
14% 24 45 4 13
Earnings
17% 4 144 3 111
Crompton & Knowles Dow Chemical0 Eastman Chemical Ethyl First Mississippi
175.6 5,517.0 1,321.0 224.5 165.6
12.1 672.8 158.0 13.0 10.2
14 34 26 -19 11
-25 225 90 -57 15
6.9 12.2 12.0 5.8 6.2
10.4 5.0 7.9 11.0 6.0
343.8 10,722.0 2,553.0 458.8 341.9
25.3 1,238.4 290.0 34.5 29.8
19 35 26 -10 23
-12 257 109 -22 116
H. B. Fuller Geon Georgia Gulf W.R. Graced Great Lakes Chemical
322.4 357.6 275.8 932.3 640.9
10.1 26.5 50.8 48.1 78.5
18 26 32 19 22
9 107 155 25 16
3.1 7.4 18.4 5.2 12.2
3.4 4.5 9.6 4.9 12.9
618.1 693.8 589.9 1,785.7 1,209.9
16.1 47.9 110.9 74.3 146.8
20 27 47 22 24
21 142 239 31 9
Hercules IMC Global International Flavors Loctite Lubrizol
614.3 501.4 394.3 201.2 436.8
79.1 31.7 75.7 24.1 61.3
-13 15 14 13 7
22 85 17 19 25
12.9 6.3 19.2 12.0 14.0
9.2 3.9 18.8 11.4 12.1
1,307.4 1,051.4 767.9 397.9 851.7
149.7 77.4 145.7 65.4 110.4
-6 24 15 18 6
28 244 18 27 19
Monsanto Morton International Nalco Chemical Olin Petrolite
2,482.0 828.5 326.8 678.2 94.0
290.0 69.6 37.1 25.8 4.3
9 13 -7 14 4
12 19 12 58 0
11.7 8.4 11.4 5.4 4.6
11.4 8.0 9.4 3.9 4.7
4,800.0 1,749.5 642.2 1,569.8 186.3
519.0 159.5 74.9 82.0 10.5
12 14 -7 20 2
15 23 12 91 8
Praxair Rohm and Haas Stepan Union Carbide Witco
788.0 1,042.0 136.3 1,541.0 586.7
67.0 87.0 5.4 228.0 21.2
22 10 21 31 4
22 -8 32 212 -27
8.5 8.3 4.0 14.8 3.6
8.5 10.1 3.7 6.2 5.1
1,544.0 2,027.0 271.0 2,994.0 1,189.1
132.0 183.0 11.5 458.0 44.8
23 13 23 30 6
36 13 89 237 -13
$23,844.5
$2,527.6
7.7% $46,897.2
$4,855.0
TOTAL
19%
63%
10.6%
21%
75%
a After-tax earnings from continuing operations, excluding) significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales, c Reflects the second-quarter sale c Marion Merrell Dow to Hoechst. d Reflects National Medica I as a discontinued operation. def = deficit, nm = not mean ngful.
chemical products continued to show strength. "We are pleased with the financial results for the second quarter, even though demand for some products declined from their record highs in the first quarter," says Georgia Gulfs president and chief executive officer, Jerry R. Satrum. "We are hopeful that lower interest rates and improved housing activities will lead to stabilization of demand for those products that have shown recent weakness." Arco Chemical posted the largest percentage increase in sales for the quarter, reporting a 39% increase to $1.15 billion. And for the half, sales grew 45% to $2.29 billion. Arco's earnings climbed 121% for the quarter, to $150 million, 22
AUGUST 21,1995 C&EN
and for the half, they surged 144% to $276 million. Only a small component of companies' increased sales in the second quarter can be attributed to increased production of chemicals. As reported by the Federal Reserve Board, U.S. chemical production in the quarter grew just 3.6% from second-quarter 1994. That compares with year-to-year production growth of 7.6%, 3.9%, and 5.2%, respectively, posted by chemical makers in the first quarter and last year's fourth and third quarters. The petrochemical segments of most of the 12 oil companies surveyed posted stellar second-quarter gains. For example, Occidental Petroleum's earnings from its chemical division soared 383%
from last year's second quarter to $314 million. Its sales grew a more modest 30% to $1.46 billion. Mobil's chemical segment posted earnings of $186 million in the quarter, up 376% from a year earlier, and sales climbed 41% to $1.37 billion. Chevron's chemical earnings climbed 257% to $175 million on a 38% sales increase to $1.10 billion. Exxon's chemical earnings rose 200% to $571 million on a 36% sales gain to $3.52 billion. "Market fundamentals continue to be uncertain and volatile and are likely to remain so in the near term," says Mobil's chairman, Lucio A. Noto, sounding a note of caution. "[Operating] margins in [the] chemicals [segment], which have been very strong this year, are showing
For Vulcan Materials, operating earnings from chemical operations in the second quarter topped $23 FIRST-HALF 1995 12-MONTH RUNNING DATA million, compared with a Profit margin Change from 1994 Profit margin 1994 $4.2 million operating loss 1995 Sales Earnings 1994 1995 in last year's second quar12% 9.3% 9.0% 20% 8.5% 9.1% ter. Chemical sales in5.1 345 4.3 5.7 293 5.0 creased 61% to $145 mil7.1 12.1 29 7.4 89 10.8 lion. For the first half, Vul4 10.6 10.6 6 10.1 10.3 can's chemical operating 94 5.1 9.6 10 7.9 4.5 earnings reached $39.7 14 7.4 10.0 -11 9.4 7.3 million, compared with an 4.4 25 216 11.6 8.9 3.5 $8.4 million operating loss 22 6.8 11.4 85 10.0 6.6 in last year's first half. 8.7 7.5 250 155 8.0 11.0 Chemicals sales for the half 8.7 227 4.9 26 3.5 9.0 grew 64% to $284 million. "Second-quarter earnings 2.6 18 2.6 16 2.9 2.8 for the [chemicals] segment 3.6 217 29 6.9 2.6 6.3 exceeded our expectations, 44 8.2 267 18.8 6.9 17.5 thanks to continuing strong 3.9 4.2 17 9 5.4 5.8 caustic soda prices, im13.8 12.1 22 6 14.5 12.6 proved pricing for chlori8.4 34 -1 11.5 11.2 8.3 nated organics, and some 2.7 7.4 nm 33 6.6 def amelioration in raw materi18.5 19.0 19 15 17.0 17.5 al costs," says Herbert A. 15.2 16.4 19 12.1 33 10.8 Sklenar, chairman and CEO 11.5 13.0 32 5 8.4 10.6 of Vulcan. 10.6 10.8 16 10 7.4 7.8 W.R. Grace, usually 8.4 17 9.1 30 8.8 7.9 among the top five in sales 9.7 11.7 -7 9 12.2 10.5 of the 30 chemical produc3.3 5.2 127 16 4.5 2.3 ers surveyed, dropped to 1 5.3 5.6 5.4 0 5.5 the eighth position in the 7.7 21 44 8.5 6.7 7.9 second-quarter analysis, 9.0 12 9.0 7.6 31 6.5 reflecting the anticipated 4.2 14 2.8 78 3.9 2.5 spin-off of its health care 5.9 15.3 23 201 5.0 12.3 division, National Medical. 4.6 3.8 -4 6 4.2 4.7 Although the spin-off is expected to take place be7.2% 10.4% 35% 7.1% 81% 8.8% fore the end of the year, nm = not meaningful, def = deficit. Grace reported the division as a discontinued operation during the second some early signs of weakening from the quarter and, hence, the company contracted a bit. But Grace will be left with current relatively high levels/' PPG Industries and Vulcan Materials businesses that are mainly based in were the earnings growth leaders, per- chemicals. centagewise, among the diversified manCabot and Geon also posted tripleufacturers surveyed. Operating earnings digit earnings growth in both the secfrom PPG's chemical operations topped ond quarter and first half. Cabot's earn$103 million in the second quarter, up ings for the quarter increased 114% to 194% from second-quarter 1994. Its $47.0 million, and for the first half, they chemical sales grew 35% to $415 million. rose 111% to $93.4 million. PPG's total earnings rose 46% to $217 Geon's earnings for the quarter inmillion. creased 107% to $26.5 million, and for For the first half, operating earnings the half, they rose 142% to $47.9 million. from PPG's chemical segment increased "We are pleased to report these excellent 176% from last year's first half to $196 results, particularly in view of the slowmillion, on a 36% increase in chemical down in customer demand during the sales to $811 million. PPG's total earn- quarter," says William F. Patient, Geon's ings for the first half increased 53% to chairman and CEO. "Our customers, es$412 million. pecially in the building and construction b
b
segments, are optimistic that demand should regain momentum later this year. The improved interest rate picture and continued world-demand trends are encouraging indicators that demand will strengthen in the second half of 1995." Several of the 30 chemical companies surveyed finished the second quarter and first half with reductions in earnings. Ethyl's earnings dropped 57% in the quarter to $13 million and 22% in the half to $34.5 million. The company attributed the fall to lower lead antiknock additive sales—which had been anticipated—and lower profits from its lubricant and fuel additives businesses. Witco's earnings fell 27% for the quarter to $21.2 million and 13% for the half to $44.8 million, and the company specifically cited lower earnings from its lubricants group. Its chairman and CEO, William R. Toller, also points to continuing high prices for raw materials, including commodity chemicals. "The expected downturn in raw material costs has not yet occurred. In fact, such costs continued to rise during the quarter, and we have not succeeded in fully passing them through." And Crompton & Knowles' earnings fell 25% for the quarter to $12.1 million and 12% for the half to $25.3 million. Nalco Chemical reported lower sales
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 24 oil and diversified companies, each with more than $200 million in annual chemical sales, plus 10 pharmaceutical companies. To be included in the table of 30 basic chemical producers, a company must have at least 50% of its sales in chemicals. That is why DuPont, for example, is included in the table of diversified manufacturers. In referring to chemical sales, C&EN means those chemicals whose molecular composition has been changed in the course of manufacture. Hence, chemical sales include those of traditional categories of basic petrochemicals and inorganics, organic intermediates and inorganic compounds, polymers such as plastics and fibers, and agricultural chemicals and specialty derivatives.
AUGUST 21, 1995 C&EN
23
BUSINESS
Earnings rose 84% for oil companies , 23% for diversifiedfirms,but only 10% for drug firms FIRST-HALF 1995
SECOND-QUARTER 1995 Sales
Earnings3
($ millions)
Change from 1994 Sales
Earnings
Profit margin" 1995
1994
Sales
Earnings8
Change from 1994 Sales
($ millions)
Earnings
Profit marginb 1995
1994
OIL AND GAS COMPi&NIES Amoco Ashland Chevron Exxon Fina Kerr-McGee
$ 7,729.0 $ 568.0 3,270.0 48.0 9,567.0 611.0 31,667.0 1,630.0 965.4 41.8 456.7 35.2
Mobil Occidental Petroleum Phillips Petroleum Shell Oil Sun Co. Unocal TOTAL
18,849.0 2,679.0 3,636.0 6,393.0 2,915.0 2,290.0
706.0 256.0 178.0 387.0 42.0 101.0
-4% 21 8 16 15 9
43% 9 133 84 212 73
7.3% 1.5 6.4 5.1 4.3 7.7
4.9% 1.6 3.0 3.2 1.6 4.8
16 24 20 25 29 12
38 nm 197 51 nm 36
3.7 9.6 4.9 6.1 1.4 4.4
3.2 def 2.0 5.0 def 3.6
$ 15,293.0 6,027.0 18,611.0 61,446.0 1,828.5 920.6
$1,116.0 19.0 1,007.0 3,290.0 75.3 72.0
36,476.0 5,393.0 6,760.0 12,051.0 5,503.0 4,196.0
1,342.0 434.0 299.0 690.0 35.0 155.0
3% 23 9 15 13 16
41% -75 47 61 96 165
7.3% 0.3 5.4 5.4 4.1 7.8
5.4% 1.6 4.0 3.8 2.4 3.4 3.3 def 2.8 4.8 0.8 3.7
16 26 14 21 27 6
28 nm 77 45 6 7
3.7 8.0 4.4 5.7 0.6 3.7
14%
84%
5.1% 3.2%
$174,505.1
$8,534.3
15%
56%
4.9% 3.6%
14% 9 14 11 7 25
16% 23 15 24 15 nm
6.3% 9.3 5.1 4.4 6.9 3.1
6.2% 8.3 5.0 4.0 6.4 def
$ 7,049.0 21,578.0 1,415.6 676.9 2,143.9 487.9
$ 425.0 1,994.0 64.3 27.8 130.1 9.5
14% 12 19 16 9 32
16% 35 18 19 15 nm
6.0% 9.2 4.5 4.1 6.1 1.9
11 10 18 20 16 17
21 3 18 nm 46 42
1,194.6 8,222.0 1,208.1 534.3 3,611.2 677.2
39.9 729.0 108.8 34.1 411.8 63.7
15 11 17 22 17 25
71 12 15 nm 53 124
$25,034.1 $2,119.8
11%
23%
8.5% 7.6%
$48,798.7
$4,038.0
13%
32%
8.3% 7.1%
$ 2,500.3 $ 424.0 3,299.3 299.6 2,465.0 165.0 3,445.0 608.0 1,614.8 310.0
13% 67 6 16 20
13% 0 15 12 -6
16.9% 17.1% 9.1 15.2 6.2 6.7 17.6 18.2 19.2 24.4
$ 5,024.7 6,790.3 4,783.0 6,746.0 3,332.1
$ 841.3 698.4 350.0 1,264.0 684.8
14% 65 6 16 25
13% -2 27 13 0
16.7% 16.8% 10.3 17.4 7.3 6.1 18.7 19.3 20.6 25.8
9 29 16 2 16
12 23 18 -2 2
20.7 12.7 20.7 13.9 11.2
7,953.0 4,884.9 2,556.7 1,643.4 3,404.2
1,615.5 736.7 561.0 267.5 402.4
9 25 12 1 13
12 17 15 11 4
20.3 15.1 21.9 16.3 11.8
19%
10%
15.0% 16.2%
$47,118.3
$7,421.6
19%
10%
15.8% 17.0%
$90,417.1 $4,604.0
DIVERSIFIED MANUFACTURERS AlliedSignal DuPont Engelhard Ferro Corp. FMC Freeport-McMoRan
$ 3,630.0 $ 227.0 11,076.0 1,035.0 721.1 36.7 14.7 334.0 1,128.4 77.7 233.4 7.3
BF Goodrich 3M Mallinckrodt NL Industries PPG Industries Vulcan Materials TOTAL Abbott Laboratories Amer. Home Prod. Baxter International Bristol-Myers Squibb Eli Lilly
600.6 4,135.0 639.0 283.4 1,870.4 382.8
Merck Pfizer Schering-Plough Upjohn Warner Lambert TOTAL
4,135.7 2,482.0 1,332.5 834.7 1,799.6
22.3 353.0 60.7 20.9 216.8 47.7
858.1 316.3 276.1 115.9 201.0
$23,908.9 $3,574.0
3.7 8.5 9.5 7.4 11.6 12.5
3.4 9.1 9.5 def 9.1 10.3
20.2 13.4 20.3 14.4 12.7
3.3 8.9 9.0 6.4 11.4 9.4
5.9% 7.7 4.6 4.0 5.8 def 2.2 8.8 9.2 def 8.7 5.2
19.7 16.1 21.4 14.9 12.8
a After-tax earnings from continuing operations, excluding si
