H E j W M M E4WEBE BUSINESS
COSTS STILL PINCH CHEMICAL FIRMS Earnings are up at most companies, but material and energy increases hurt growth
E
ARLY-REPORTING U.S. CHEMI-
cal companies are mostly showing strong first-quarter improvement over the same period in2005, with the notable exceptions of Dow Chemical and DuPont. Among major chemical makers that have reported, percentage changes in earnings growth are all in the double-digit range, but for the two largest U.S. chemical firms, those changes are declines. Earnings are from continuing operations, excluding nonrecurring and extraordinary items. Dow Chemical, the largest ofthe firms, saw earnings decline 10.6% to $1.21 billion as sales increased 2.9% to $12.0 billion. Compared with the same period in 2005, the company says, prices edged up 2%, but this was not enough to counter an increase in feedstock costs of more than $800 million. And volume, which rose 1%, was dampened by slack demand across most businesses in the U.S. as customers delayed purchases in anticipation of lower prices. Earnings at number two DuPont fell 10.3% to $867 million, and sales declined 0.5% to $7.39 billion. The company says prices were 3% higher than in the 2005 quarter, offsetting about 75% of the impact of the approximately $350 million increase in energy and raw material costs. The largest percentage earnings increases were seen, for the most part, among the smaller companies. At the smallest of them, Stepan, earnings rose 44.8% to $4.2 million on a 9.6% sales increase to $290 million. Most of Stepan's improvement in gross profit, however, came from its polymers unit. WWW.CEN-0NLINE.ORG
Larger firms also did well. Specialty chemical producer Rohm and Haas scored a 30.2% increase in earnings compared with the first quarter of 2005 to $207 million on a 3.0% increase in sales to $2.08 billion. The company's earnings include charges from stock-based compensation adjustments. Rohm and Haas saw good demand growth in its high-volume chemical businesses, with plastics additives sales up 13%, process chemicals up 10%, and architectural and functional coatings up 6%. "We have been successful in executingportfolio management strategies to shedunderperforming business while maintaining our focus on selling technically advanced, higher growth, and higher margin product lines," says CEO Raj L.Gupta. Industrial gas producers Air Products & Chemicals and Praxair G O V E R N M E N T
&
also did well. Air Products increased earnings by 21.4% to $204 million, while sales grew 157% to $2.32 billion. The company says the earnings growth came from improved results in all business segments, driven by strong sales in gases and equipment and improved pricing in chemicals. At Praxair, where earnings rose 19.0% to $225 million on 10.9% sales growth to $2.03 billion, CEO Dennis H. Reilley says, "Our elec-
RESULTS Chemical companies have their ups and downs in first-quarter 2006 SALES
EARNINGS3 CHANGE FROM 2005 PROFIT MARGINb
($ MILLIONS)
$2,317.2 Air Products 607.-4 Albemarle Dow Chemical 12,020.0 7,394.0 DuPont 594.1 FMC Corp. 527.3 Hercules PPG Industries 2,638.0 2,026.0 Praxair Rohm and Haas 2,083.0 Sigma-Aldrich 443.1 289.6 Stepan
$204.0 34.4 1,214.0 867.0 69.0 26.4 213.0 225.0 207.0 71.5 4.2
SALES EARNINGS
2006
2005
15.7% 21.4% 41.6 19.1 -10.6 2.9 -10.3 -0.5 38.0 7.5 25.1 5.1 11.5 5.8 10.9 19.0 30.2 3.0 16.1 10.8 44.8 9.6
8.8% 5.7 10.1 11.7 11.6 5.0 8.1 11.1 9.9 16.1 1.5
8.4% 4.8 11.6 13.0 9.1 4.2 7.7 10.3 7.9 15.4 1.1
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales.
tronics business led sales higher with growth of 35%, followed by aerospace, metals, and manufacturing, which showed high doubledigit growth."—WILLIAM STORCK POLICY
FDA Criticized On Drug Safety Monitoring • • Wmm DA lacks clear and effective processes I ™ for making decisions about and providI ing management oversight of" the safety of approved prescription drugs, states a report from the Government Accountability Office. Two FDA offices, the Office of Drug Safety and the Office of New Drugs, are involved in tracking the safety of drugs after they are on the market. ODS, however, cannot pull drugs from the market or ask manufacturers to put warnings on drug labels. It acts primarily as a consultant to OND. Often, ODS personnel are not even invited to testify at FDA's advisory committee hearings at which safety issues are being discussed, the report says. In addition, certain data constraints impede FDA's ability to evaluate the safety of drugs after
they are approved, GAO says. Two-thirds of the postmarket safety studies that the agency asks drugmakers to conduct are never even started. The Drug Safety Oversight Board, which FDA established last year, may help provide oversight of safety issues, but it will not address the lack of systematic tracking of safety issues, the report says. GAO recommends that Congress give FDA more authority to require drugmakers to conduct postmarket studies. It also says FDA should establish a mechanism to systematically track safety issues of approved drugs. The GAO report "provides solid evidence that everything is not all right at FDA and calls for long-overdue reform," says Sen. Charles E. Grassley (R-lowa), chairman of the Senate Finance Committee.- BETTE HILEMAN
C & E N / MAY 1 , 2006
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