BUSINESS
BRISK REBOUND FOR CHEMICAL EARNINGS
The Dow performance and specialty businesses enhanced by Rohm and Haas had a strong quarter. Recovery in the electronics market helped the firm’s electronic and specialty materials segment increase sales volumes by 31% compared with last year’s first quarter. Volumes were up by 16% in the coatings and infrastructure segment as demand took off in emerging markets.
Rising consumer spending and inventory restocking boost results in FIRST QUARTER MELODY VOITH, C&EN WASHINGTON
BUT BASIC PLASTICS added the most to ONE YEAR AFTER the economic crisis
Dow’s chief executive officer, Andrew N. Liveris, took advantage of the strong quarter to boast about the performance of the firm’s new portfolio, which now includes the businesses of Rohm and Haas. “We believe the outperformance in the first quarter represents a pivotal point in demonstrating the earnings power of the new Dow,” he said in a conference call with analysts. He referred to “the new Dow” four times in the 60-minute call.
Dow’s first-quarter earnings. Sales of $3.0 billion represented a 49% increase over the 2009 quarter, thanks to 5% higher volume and 44% higher prices. In its earnings report the firm gave most of the credit to its polyethylene business, which benefited from low production costs in North America and a weak dollar that powered exports. Those advantages resulted in double-digit sales growth in Asia-Pacific and Latin America. The low production costs were due to favorable natural gas prices in the U.S.,
walloped earnings in the chemical industry, results for the first quarter show that a sharp recovery is under way. Demand has not yet reached pre-recession levels, but chemical executives are telling investors that they expect robust growth to continue through 2010. The 24 firms tracked by C&EN reported that earnings soared 167% from last year’s first quarter on a jump in sales of 26%. Industry watchers had been expecting earnings to grow CHEMICAL INDUSTRY 2010 significantly compared First-quarter results: Sales jumped 25.8%, earnings soared 167.0%, profit margin more than doubled with early last year, when to 8.1% from 3.8% the recession hit its lowest point. Still, many firms’ re% change from year-earlier quarter % change from year-earlier quarter After-tax earnings as % of sales sults beat analyst expecta200 Earnings 40 Sales 10 Profit margin tions by a wide margin. 160 8 One of the standouts 20 120 in the first quarter was 6 80 Dow Chemical, which 0 posted earnings per share 4 40 of 43 cents, 13 cents bet0 –20 ter than the consensus 2 –40 expectation. Dow’s sales –40 –80 0 jumped 48% compared 2010 2010 2010 2008 2009 2008 2009 2008 2009 with last year’s first quarNOTE: All sales, earnings, and profit margin data are based on chemical companies listed on page 20. ter, and earnings almost tripled to $594 million.
TOP 10 RANKINGS
Chemical Industry leaders for first-quarter 2010 SALES RANK 2010
1 2 3 4 5 6 7 8 9 10
Dow Chemical DuPont PPG Industries Praxair Air Products Ashland Huntsman Corp. Mosaic Eastman Chemical Celanese
EARNINGS
$ MILLIONS
RANK 2009
$13,417 8,484 3,126 2,428 2,249 2,248 2,094 1,732 1,564 1,388
1 2 3 4 5 — 6 7 9 8
$ MILLIONS
DuPont Dow Chemical Praxair Air Products Mosaic Ashland Lubrizol CF Industries PPG Industries Celanese
$1,129 594 340 267 223 199 163 117 117 106
NOTE: Based on the companies listed on page 20.
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MAY 17, 2010
PROFITABILITY RANK 2009
1 18 2 3 8 — 7 — 9 22
EARNINGS AS % OF SALES
CF Industries Sigma-Aldrich Praxair DuPont FMC Corp. Mosaic Lubrizol Albemarle Air Products W.R. Grace
23.3% 18.5 14.0 13.3 12.9 12.9 12.4 12.1 11.9 9.2
RANK 2009
— 1 2 6 3 9 7 8 4 —
BUSINESS
pointed out P. J. Juvekar, a chemicals analyst for Citigroup, in a report to investors. “Basic plastics vastly exceeded our expectations,” he wrote about Dow. The basic plastics segment represented more than 40% of Dow’s quarterly earnings before income taxes, depreciation, and amortization, but Liveris says he would still like to move his company’s capital elsewhere in the long term. “The fact that this business is earning this much money has made the business more valuable, and we are definitely taking our time in structuring the right deal,” he said in the analyst call. DuPont, meanwhile, made its largest gains in electronic and performance materials, driven by strong global demand for photovoltaics, semiconductors, autos, and consumer products. But business grew across the board. Strong demand boosted total sales to $8.5 billion, up 24% compared with the year-ago quarter, while earnings shot up 131%. The company’s earnings per
share of $1.24 topped consensus expectations by 18 cents. In a conference call with analysts, DuPont CEO Ellen J. Kullman said the firm would surpass $1 billion in photovoltaic material sales in 2011, one year ahead of plan. She also reported that DuPont is benefiting from continued recovery in the automotive market and said the firm estimates that global auto assemblies will increase 13% in 2010 compared with last year. More than half of DuPont’s pretax operating profit for the quarter came from its agriculture and nutrition business. Higher seed prices and volumes in North America boosted sales by 6% compared with the year-ago quarter. “We have tremendous momentum in our seed business, particularly in North America, where sales in this region topped $3 billion in 2009,” Kullman said. She added that the company expects to gain one to two points of global seed market share in 2010.
CHEMICAL RESULTS
Most firms saw earnings rebound from last year’s low as demand and prices strengthened SALES EARNINGSa CHANGE FROM 2009 ($ MILLIONS) SALES EARNINGS
Air Products Albemarle Arch Chemicals Ashland Cabot Celanese
$2,249 580 299 2,248 712 1,388
$267 70 6 199 43 106
CF Industries Cytec Industries Dow Chemical DuPont Eastman Chemical Ferro
502 787 13,417 8,484 1,564 493
117 33 594 1,129 101 -1
FMC Corp. H.B. Fuller W.R. Grace Huntsman Corp. Lubrizol Mosaic
757 309 615 2,094 1,316 1,732
Nalco PPG Industries Praxair Rockwood Holdings Sigma-Aldrich Stepan TOTALc
15.0% 19.1 14.1 13.0 51.5 21.1
PROFIT MARGINb 2010 2009
29.6% 176.8 93.8 91.3 nm 783.3
11.9% 12.1 2.1 8.9 6.0 7.6
-26.3 28.6 48.4 23.5 38.5 37.7
85.7 1,111.1 191.2 131.4 461.1 def
23.3 4.2 4.4 13.3 6.5 nm
9.3 0.4 2.3 7.1 1.6 nm
98 19 56 -16 163 223
9.6 10.8 -9.8 24.6 30.0 25.9
10.1 187.9 nm def 126.4 278.0
12.9 6.1 9.2 nm 12.4 12.9
12.9 2.4 nm nm 7.1 4.3
957 3,126 2,428 834 572 337
45 117 340 39 106 21
10.3 12.3 14.4 26.4 10.2 6.0
95.7 265.6 17.2 nm 26.2 35.5
4.7 3.7 14.0 4.7 18.5 6.1
2.6 1.1 13.7 nm 16.2 4.8
$47,800
$3,975
25.8%
167.0%
8.1%
10.5% 5.2 1.2 5.2 nm 1.0
3.8%
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales. c Percentages were calculated from combined sales and earnings. def = deficit. nm = not meaningful.
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MAY 17, 2010
A strong agricultural season will also benefit fertilizer firms after a weak 2009 that saw earnings erode. In the first quarter, Mosaic reported increased earnings from improved demand for phosphate and potash fertilizers and lower phosphate raw material costs. CF Industries told shareholders it expects U.S. corn acreage to increase compared with last year. The firm, which finally succeeded in acquiring Terra Industries for $4.7 billion in April, said many customers have delayed purchases to the second quarter. The $117 million in operating earnings the firm reported do not include $123 million to pay Terra’s breakup fee to Norwegian fertilizer firm Yara, which had struck an earlier deal to buy Terra. FOR MOST of the firms in C&EN’s survey,
the return of manufacturing activity drove growth in the first quarter. The Institute for Supply Management, which publishes the Purchasing Managers Index, reports that “manufacturers continue to see extraordinary strength in new orders.” Cytec Industries saw its earnings grow by a factor of 12 compared with last year. “Selling volumes in our specialty chemical and building block segments increased from improved demand across all regions when compared with the high levels of destocking which took place in the prior-year quarter,” Cytec CEO Shane Fleming remarked. Like many executives, he stressed that last year’s cost-cutting measures also helped improve profit margins. Restocking helped PPG Industries increase sales by 12%. CEO Charles E. Bunch said higher year-over-year sales volumes in industrial coatings were due to demand in automotive and general industrial applications. The firm boosted earnings 266% to $117 million for the quarter. Eastman Chemical enjoyed a 39% growth in sales compared with the first quarter of 2009, powered in large part by increased demand for coatings raw materials. Higher volumes led the company to increase its capacity utilization, leading to lower unit costs. Higher demand in global tire and automotive markets drove Cabot’s business in carbon black used to make rubber to a volume increase of 28%. Overall, the firm saw sales increase by 52% compared with last year’s first quarter, the largest jump in the C&EN survey. Customer restocking and increased manufacturing activity boosted Lubrizol’s
sales 30% over last year’s quarter, and earnings improved 126% to $163 million. Laurence Alexander, a chemicals analyst at Jefferies & Co., said the firm will use its strong balance sheet for bolt-on acquisitions and suggested that Lubrizol should bulk up its advanced materials business. Lubrizol wouldn’t be alone looking for acquisitions. This year has seen a significant turnaround in deal activity, according to Young & Partners, an investment banking firm serving chemical and life sciences companies. Tight credit markets contained deal-making in 2009 for all but the highest rated corporations, remarks Peter Young, president of Young & Partners. But the first quarter of 2010 brought $4.5 billion in acquisitions, 10 times more than in last year’s quarter (see page 11). One example of a big deal that could happen in 2010, Young says, is Air Products & Chemicals’ attempt to take over Airgas for $7.0 billion. But Young cautions that activity could slow if credit markets are harmed by the debt problems of Greece, Portugal, and Spain or by a crisis in commercial real estate.
hampered by higher costs, as demand for energy and raw materials ramps up along with the global recovery. At DuPont, executives predict that costs for the year will rise by 5%, whereas the firm had enjoyed 2% lower costs in the first quarter. Still, DuPont increased its full-year earnings guidance to $2.50 to $2.70 per share from an earlier estimate of $2.15 to $2.45.
DuPont’s Kullman told analysts that the firm’s strong first quarter was the result of the past “six quarters’ worth of efforts in terms of restructuring, fixed and variable cost productivity, working capital productivity, and most importantly, staying close to our customers and markets. We’ve effectively repositioned the company for the recovery that’s under way right now.” ■
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