BUSINESS
CHEMICAL COMPANY EARNINGS SOAR A good quarter gives firms another stellar increase as product demand improves WILLIAM J. STORCK, C&EN NORTHEAST NEWS BUREAU
C
HEMICAL COMPANY EARNINGS
surged in the first quarter as pro duction and prices increased, demand for U.S. chemical prod ucts rose over the same period in 2003, and firms continued to cut costs. Combined, these three factors generally offset increased raw material and energy costs. Total earnings from continuing opera tions, excluding unusual items, at 24 of
chemical producers, whose combined earnings rose 47.0% to $1.29 billion on a sales increase of 13.1% to $17.8 billion. Industry fundamentals were good in the first quarter. Total U.S. chemical pro duction rose 3.8%, according to Federal Reserve Board data, and the Labor De partment reports a 3.6% increase in prices for all chemicals. Demand was good, with Commerce Department data showing to tal chemical shipments rising 7.1%.
"Dov/s first quarter can be characterized by the following major drivers: strong vol ume, favorable price momentum, and good control on expenses, offsetting his torically high feedstock and energy costs." Looking at the quarter overall, he said, sales increased 15.2% to $9.31 billion. Vol ume was up 7.0%, "and this is the first time that all operating segments have posted year-over-year volume growth since the second quarter of 2000." Prices increased 8.0%, with the strongest gains in the chemicals and plastics segment, accord ing to Reinhard. Reinhard said feedstock and energy costs increased $100 million from the same quarter in 2003, but he also point ed out that Chief Executive Officer William S. Stavropoulos had predicted in January that these costs would rise by more than $300 million from the fourth quarter of 2 0 0 3 to the first quarter of 2004. In fact, they rose more than $400 million. Despite this increase, Dow's earn-
Τ0Ρ 10 RANKINGS Chemical industry leaders for first-quarter 2004 SALES RANK 2004
1 Dow Chemical 2 DuPont 3 PPG Industries 4 Air Products 5 Rohm and Haas 6 Eastman Chemical 7 Praxair 8 Monsanto 9 Engelhard 10 IMC Global
EARNINGS RANK $ MILLIONS 2003
$9,309.0 8,073.0 2,264.0 1,856.5 1,832.0 1,597.0 1,531.0 1,492.0 1,040.0 584.2
1 2 3 5 4 6 7 8 9 10
DuPont Dow Chemical Monsanto Praxair Air Products PPG Industries Rohm and Haas Eastman Chemical Engelhard Cabot
$ MILLIONS
RANK 2003
$964.0 469.0 186.0 164.0 141.2 115.0 114.0 59.0 50.3 36.0
1 5 3 2 4 7 6 18 8 11
PROFITABILITY EARNINGS AS % OF SALES
Monsanto DuPont Praxair Cambrex Air Products Cytec Industries Cabot Rohm and Haas Lubrizol Albemarle PPG Industries
12.5% 11.9 10.7 9.9 7.6 7.5 7.2 6.2 5.7 5.1 5.1
RANK 2003
2 4 1 3 6 5 11 10 8 7 12
NOTE: Based on 25 companies, excluding Crompton, listed on page 20.
the 25 chemical companies regularly sur veyed by C&EN rose 79.4% to $2.50 bil lion as total sales for the group increased 14.7% to $35.1 billion. (Crompton is not included because of large unusual gains that cannot be stripped out of its results.) And the aggregate profit margin for the group jumped to 7.1% from 4.6% in the comparable quarter of last year. This is the best profitability seen for the surveyed companies since the second quarter of 2000, when the profit margin was 9.6%. The 79.4% earnings increase among the chemical companies was much greater than that for 10 diversified and other
Getting closer to the products of the companies in the survey, basic chemical production was up just 1.9%. But both prices and shipments of basic chemicals beat the broader industry data. Prices for the important industrial chemical sector rose 4.1% over the same period a year ago, while shipments of all chemicals, exclud ing pharmaceuticals, increased 12.3%, slightly less than the 14.7% increase in sales for the 24 chemical companies. Industry leader Dow Chemical exem plifies the pattern in the first quarter. Chief Financial Officer J. Pedro Reinhard told a group of securities analysts that
ings more than quintupled to $469.0 mil lion from the first quarter of 2003. And its earnings as a percentage of sales in creased to 5.0% from 1.1%. Dow also had the largest dollar increase in earnings—$384.0 million, somewhat ahead of DuPont's $349.0 million jump. Number two DuPont's earnings in creased 56.7% to $964.0 million, keep ing its place as the earnings leader. Sales at the company were up 15.2%, the same per centage growth as at Dow, to $8.07 bil lion. The company's profit margin rose to 11.9% from 8.8% in the same period last year.
"We are confident that higher volumes and price increases will help us offset the higher input costs.
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C & E N / MAY 1 7, 2004
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BUSINESS
CHEMICAL COMPANIES Most firms posted gains between good and unbelievable in the first quarter SALES EARNINGS9 ($ MILLIONS)
Air Products Albemarle Arch Chemicals Cabot Cambrex
CHANGE FROM 2003 SALES EARNINGS
PROFIT MARGINb 2004 2003
7.6% 5.1 1.1 7.2 9.9
7.2% 6.3 0.9 4.9 9.3
$1,856.5 322.0 278.7 500.0 112.6
$141.2 16.5 3.0 36.0 11.2
Cromptonc Cytec Industries Dow Chemical DuPont Eastman Chemical
624.3 415.2 9,309.0 8,073.0 1,597.0
60.4 31.3 469.0 964.0 59.0
17.3 13.0 15.2 15.2 10.8
nm 8.3 451.8 56.7 883.3
9.7 7.5 5.0 11.9 3.7
def 7.9 1.1 8.8 0.4
Engelhard Ferro FMC Corp. H.B. Fuller Georgia Gulf
1,040.0 451.7 505.7 318.6 496.7
50.3 14.4 13.9 4.6 18.7
25.2 12.4 16.5 8.1 36.5
9.1 44.0 631.6 -27.0 183.3
4.8 3.2 2.7 1.4 3.8
5.6 2.5 0.4 2.1 1.8
518.5 368.1 475.0 584.2 578.7
15.8 6.7 18.0 11.6 33.2
16.6 10.2 6.3 5.8 13.9
nm 7,344.4 20.0 nm 16.9
3.0 1.8 3.8 2.0 5.7
def 0.0 3.4 def 5.6
1,492.0 2,264.0 1,531.0 1,832.0 221.4
186.0 115.0 164.0 114.0 4.0
15.4 9.3 14.5 13.6 18.3
52.5 47.4 26.2 39.0 73.9
12.5 5.1 10.7 6.2 1.8
9.4 3.8 9.7 5.1 1.2
$35,141.6
$2,501.4
14.7%
79.4%
W.R. Grace Great Lakes Chemical Hercules IMC Global Lubrizol Monsanto PPG Industries Praxair Rohm and Haas Stepan TOTALd
17.6% 20.7 24.3 7.3 8.2
24.3% -1.2 42.9 56.5 15.5
7.1%
4.6%
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales, c Crompton's results contain unusual pretax gains of $82.2 million in first-quarter 2004 and pretax charges of $9.3 million in first-quarter 2003. d Percentages were calculated from combined sales and earnings. Because of significant unusual items that cannot be excluded from earnings, results for Crompton are not included in totals, def = deficit, nm = not meaningful.
Like Dow, DuPont's sales volume increased 7.0% in the quarter. "We are off to an excellent start in 2004," CEO Charles O. Hollidayjr. says. "Each of the five DuPont growth platforms"—agriculture and nutrition, coatings and color technologies, electronic and communication
technologies, performance materials, and safety and protection—"delivered strong results, exceeding our earnings expectations across all businesses and regions." While Dow and DuPont had big dollar increases in earnings for the quarter, they were not the leaders in percentage growth.
CRITERIA FOR C&EN EARNINGS ANALYSIS C&EN's quarterly report on financial performance of the U.S. chemical industry contains data from 25 major U.S. basic chemical companies and from 10 diversified companies, each with more than $200 million in annual chemical sales. To be included in the table of basic chemical producers, a company must have at least 50% of its sales in chemicals. In referring to chemical sales, C&EN means sales of chemicals whose
20
C & E N / MAY 1 7, 2004
molecular composition has been changed during manufacture. Hence, these include traditional categories of basic petrochemicals and inorganics, organic intermediates and inorganic compounds, polymers such as plastics and fibers, and agricultural chemicals and specialty derivatives. In listing earnings, the report gives after-tax income for continuing operations, excluding significant nonrecurring and extraordinary items.
These prizes go to Great Lakes Chemical, up 7,344%; Eastman Chemical, up 883%; and FMC Corp, up 632%. These three companies, however, all grew from a very low base. Great Lakes's huge percentage rise came as earnings jumped from just $900,000 in the first quarter of last year to $6.7 million in the 2004 period. Sales at the company rose 10.2% to $368.1 million. CEO Mark P. Bulriss attributes the improved performance to a combination of the strengthening global economy and the firm's efforts to boost productivity, manage assets better, and satisfy customer and market needs. Eastman's earnings rose $833% to $59.0 million as sales increased 10.8% to $1.60 billion. CEO J. Brian Ferguson says: "Our first-quarter results clearly indicate that we are making progress toward improving the profitability of the company This strong performance reinforces our resolve for taking the necessary actions to continue to improve the company's financial results." Eastman's profit margin increased to 3.7% for the quarter from a scant 0.4% in the 2003 period. And FMC's 632% earnings increase to $13.9 million came on a 16.5% sales rise to $505.7 million. "We had a great start in 2004, a year that we expect to be a major turning point in our financial performance," says William G Walter, the company's CEO. "We significantly exceeded the expectations we had set at the beginning of the quarter due to outstanding performance in our agricultural products segment." THERE WERE JUST two earnings deciders at the companies on the list: Albemarle and H.B. Fuller. Fuller's earnings declined 27.0% to $4.6 million, despite an 8.1% increase in sales, as increased costs cut into earnings. However, C E O Al Stroucken says: "We are pleased to have realized volume improvements in all regions this quarter. New products, improved processes, fresh ideas, and energized associates will allow us to fully participate in the improved economic environment." Albemarle's earnings declined just 1.2% to $16.5 million on a 20.7% sales rise to $322.0 million. Earnings were affected by the idling of the company's zeolite assets, one-time costs associated with the acquisition of Atofina's bromine business, and higher raw material costs. Cambrex, the smallest company on the list in terms of sales, had a 15.5% increase in earnings to $11.2 million as sales rose 8.2% to $112.6 million. James A. Mack, HTTP://WWW.CEN-ONLINE.ORG
% change from year-earlier quarter 20 Sales
CHEMICAL INDUSTRY 2004 First-quarter results
nW m
Sales increased 15% Earnings jumped again Profitability was 7.1% Output rose 3.8% Prices climbed 3.6%
miiui
NOTE: All sales, earnings, and profit-margin data are based on the chemical companies listed on page 20. SOURCES: Federal Reserve Board (production data), Department of Labor (prices data)
2002
2003
% change from year-earlier quarter
4f Production
Profit margin
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2 1
Ν Π Mill 111 ιι 11111
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2004
CEO of the pharmaceutical chemical pro ducer, says: "We are encouraged by the progress we've made in the human health and biopharma segments, resulting from our new product programs, investments in sales and marketing, and more favorable market conditions. We continue to in crease the resources dedicated to identi fying and pursuing new development and manufacturing opportunities that will re sult in improved performance in the bio pharma business." In spite of the higher costs, most exec utives are optimistic about the economy and its effect on their firms. DoVs Rein-
-0.2
•
$-11.0 52.2 295.0 159.4 -15.0
535.6 368.1 361.0 4,939.0 561.1
9.9 58.7 7.8 722.0 15.7
$17,790.4
$1,294.7
2002
2003
2004
1 -*• -n 2003
2004
hard says: "For the chemical industry, im provements in global gross domestic prod ucts and industrial production should drive higher demand. With limited addi tional capacity additions expected during the course of this year, supply-demand bal ances should continue to tighten." He warns, however, that oil and natu ral gas prices are expected to remain high and volatile. "While U.S. natural gas prices may soften somewhat in the coming months, a significant decline during the year is not expected," he says. "We con tinue to be cautiously optimistic about the future. We will continue to focus on in-
$1,812.0 814.3 6,178.0 1,116.3 1,105.0
CHANGE FROM 2003 SALES EARNINGS
10.2% 23.6 14.4 1.5 11.7 8.8 10.0 28.9 14.4 8.1 13.1%
nm 45.4 7.7 25.2 nm nm 20.0 nm 28.9 647.6 47.0%
PROFIT MARGIN6 2004 2003
def 6.4% 4.8 14.3 def
def 5.5% 5.1 11.6 def
1.8 15.9 2.2 14.6 2.8
def 14.6 def 13.0 0.4
7.3%
5.6%
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales, c For companies reporting, def = deficit, nm = not meaningful.
HTTP://WWW.CEN-ONLINE.ORG
0
1
2002
SALES EARNINGS3 ($ MILLIONS)
T0TALc
20
• 1
Most companies showed earnings improvement in first quarter
PolyOne Sigma-Aldrich Terra Industries 3M Vulcan Materials
40
% change from year-earlier quarter
OTHER CHEMICAL PRODUCERS
Ashland Dow Corning Honeywell Kerr McGee Lyondell Chemical
60
2004
lui
2003
80
-20
After-tax earnings as % of sales
2002
% change from year-earlier quarter 100 Earnings
2002
2003
2004
stitutionalizing the savings accomplished in 2003." At Ferro, CEO Hector R. Ortino says: "Our optimism about the sustainability of the economic recovery in North Amer ica continues to grow. Market conditions in the Asia-Pacific region are expected to remain strong, while a recovery in our key end markets in Europe will challenge us in the short term. We continue to deal with higher raw material costs, but we are con fident that higher volumes and price in creases will help us offset the higher in put costs." Rohm and Haas CEO Raj L. Gupta says that although the overall economic out look is positive, significantly higher raw material costs and the uncertainties over currency exchange rates will temper the full impact of sales growth on earnings. "We expect to continue to see higher de mand as a result of the economic recov ery," Gupta says, "as well as gains made through market share and new products we are introducing into the marketplace." Costs also are much on the mind of Cytec Industries CEO David Lilley: "We are pleased with our strong start for 2004, and we continue to execute on the factors we can control. However, our latest fore cast, which was provided inJanuary 2004, assumed a moderation of raw material and energy costs. We now expect the trend of higher raw material costs to continue, and this will have an adverse effect on our two specialty chemical segments." • C & E N / MAY 1 7, 2004
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