BUSINESS
Chemical Earnings, Profitability Dropped in 1989 William J. Storck, C&EN Northeast News Bureau
Rising feedstock costs and falling product prices spelled trouble for many chemical producers in last year's fourth quarter. Earnings for major chemical companies and oil firms producing chemicals dropped from the year-earlier period, but earnings for diversified companies that produce chemicals and for pharmaceutical firms continued to increase. For a group of 30 major chemical companies, combined earnings for
the quarter fell 29% from fourthquarter 1988 to $1.23 billion. Sales totaled $19.9 billion, about the same as in the year-earlier quarter. Profit margin (earnings as a percentage of sales) plummeted to a group average of 6.2%, down from 8.7% in fourth-quarter 1988 and down from 8.1% for the same companies in the third quarter. Thus, chemical company earnings fell from double-digit increases in the first quarter of 1989 to doubledigit declines in the fourth quarter. Perhaps even more disturbing is that the fourth quarter, which is
traditionally stronger than the third, when many companies shut down plants for maintenance, was considerably weaker this year. Sales for the fourth quarter were up less than 1% from the third quarter, but combined earnings were down almost 23%. The decline in fourth-quarter earnings was enough to wipe out possible gains for the year. Through the third quarter, earnings for the group of 30 chemical companies were up 3% over the first nine months of 1988. But the decline in fourth-quarter earnings meant that
Chemical industry leaders for the fourth quarter Earnings3
Sales Rank 1989
Rank $ Millions 1988
1 Dow Chemical $4264.0 2 Union Carbide 2085.0 3 Monsanto 2007.0 4 W. R. Grace 1719.2 5 American Cyanamid 1146.9 6 Hercules 773.4 7 Air Products 652.5 8 Ethyl 644.9 9 Quantum Chemical 626.7 10 Rohm & Haas 623.2
1 2 3 4 5 7 9 13 6 12
Profitability Earnings as Rank % of sales 1988
Rank $ Millions 1988
Dow Chemical Union Carbide W. R. Grace Arco Chemical Ethyl Monsanto Air Products Georgia Gulf American Cyanamid Nalco Chemical
$427.0 103.0 83.4 75.0 62.6 54.0 49.4 41.2 38.5 32.6
1 2 7 3 8 10 5 9 6 15
17.0% 13.9 12.9 12.4 11.5 11.1 10.5 10.0 9.7 8.3
Georgia Gulf Great Lakes Chemical International Flavors Arco Chemical Nalco Chemical Loctite Betz Laboratories Dow Chemical Ethyl Vista Chemical
2 1 7 3 10 9 10 5 12 4
. . . and for full-'/ear 1989 Earnings3
Sales Rank $ Millions 1988
1 Dow Chemical $17,600.0 1 2 Union Carbide 8,744.0 2 3 Monsanto 8,681.0 3 4 W. R. Grace 6,114.6 4 5 American Cyanamid 4,825.0 5 6 Hercules 3,091.7 7 7 Quantum Chemical 2,671.0 6 8 Arco Chemical 2,663.0 8 9 Rohm & Haas 2,660.9 9 10 Air Products 2,653.8 10
Dow Chemical Monsanto Union Carbide Arco Chemical American Cyanamid W. R. Grace Air Products Ethyl Georgia Gulf Rohm & Haas
Note: Based on 30 chemical companies listed on page 1 2. a After taxes.
10
February 19, 1990 C&EN
Profitability Earnings as Rank % of sales 1988
Rank $ Millions 1988
$2487.0 647.0 629.0 405.0 292.0 256.6 223.9 219.5 200.0 176.4
1 3 2 4 6 12 8 10 11 7
Georgia Gulf International Flavors Great Lakes Chemical Arco Chemical Dow Chemical Vista Chemical Loctite Nalco Chemical Betz Laboratories Ethyl
18.1% 15.9 15.5 15.2 14.1 13.9 12.3 11.2 10.8 9.0
2 6 1 2 7 4 9 11 10 12
Chemical industry 1989 fourth-quarter results
• • • • •
Sales
Earnings
% change from year-earlier quarter
% change from year-earlier quarter
Sales were nearly flat Earnings dropped 29% Profit margins fell to 6.2% Production rose 3.4% Prices up less than 1%
1989
1988
1989
1988
Profit margins
Production
Prices
After-tax earnings as % of sales 1b
% change from year-earlier quarter 101
% change from year-earlier quarter 15 |
10
5
0 1988
1989
1988
1989
1989
1988
Sales in 1989 increased about 6% and earnings declined 4%, lowering profit margins to 8.7% Annual sales $ Billions 100
Annual earnings
Annual profit margins
$ Billions 10
After-tax earnings as % of sales
οι ι ι ι ι ι ι i l r r I
n mmm
1978 79 80 81 82 83 84 85 86 87 88 89a
1978 79 80 81 82 83 84 85 86 87 88 89a
w;mwimEmm?M&
1978 79 80 81 82 83 84 85 86 87 88 89a
Note: Ail sales, earnings, and profit margin data are based on 30 companies on page 12. a C&EN estimates.
February 19, 1990 C&EN
11
Business
Earnings fell at most chemical companies in the fourth quarter FOURTH-QUARTER 1989 Earnings3 Change from 1988 ($ millions) Sales Earnings
Sales
Air Products American Cyanamid Arco Chemical Aristech Betz Laboratories
$
652.5 $ 1,146.9 606.0 222.6 128.5
49.4 2% 4 38.5 75.0 - 1 9 15.1 - 1 4 12 13.5
FULL-YEAR 1989 Profit margin6 1989
1988
Sales
Earnings3
($ millions)
Change from 1988 Sales
-19% -37 -44 -57 9
7.6% 3.4 12.4 6.8 10.5
7% 9.5% $ 2,653.8 $ 223.9 5 292.0 4,825.0 5.5 405.0 - 1 2,663.0 18.0 82.1 - 6 996.4 13.5 55.9 15 516.7 10.7
Profit margin15
Earnings
1989
1988
2% -1 -18 -50 15
8.4% 6.1 15.2 8.2 10.8
8.8% 6.4 18.3 15.4 10.8
Cabot Chemed Crompton & Knowles Dow Chemical Ethyl
406.6 145.6 85.1 4,264.0 644.9
18.4 - 1 5 5.7 0 6.0 - 1 427.0 - 1 62.6 11
-19 55 44 -33 14
4.5 3.9 7.1 10.0 9.7
4.7 2.5 4.9 14.8 9.5
1,863.5 591.8 355.8 17,600.0 2,430.0
51.9 26.2 24.5 2487.0 219.5
5 18 23 6 16
-16 27 45 3 13
2.8 4.4 6.9 14.1 9.0
3.5 4.1 5.8 14.4 9.3
First Mississippi H. B. Fuller Georgia Gulf B. F. Goodrich W. R. Grace
131.5 189.6 243.2 573.7 1,719.2
36 1.4 5.1 5 41.2 - 1 4 28.1 - 4 83.4 4
-77 5 -24 -30 50
1.0 2.7 17.0 4.9 4.8
6.3 2.7 19.2 6.7 3.4
489.2 753.4 1,104.5 2,419.7 6,114.6
8.3 15.7 200.0 171.2 256.6
48 10 4 4 6
-67 -26 3 -17 34
1.7 2.1 18.1 7.1 4.2
7.6 3.1 18.3 8.8 3.3
Great Lakes Chemical Hercules International Flavors International Minerals Loctite Lubrizol Monsanto Nalco Chemical Olin Petrolite Quantum Chemical Rohm & Haas Union Carbide Vista Chemical Witco TOTAL0
226.2 773.4 188.6 330.1 121.7
31.5 -26.9 24.4 9.8 13.5
59 3 4 37 8
14 def 5 -35 10
13.9 def 12.9 3.0 11.1
19.4 0.9 12.8 6.2 10.9
792.3 3,091.7 869.5 1,165.8 473.9
122.9 103.6 138.6 69.7 58.2
42 10 4 23 8
19 -14 8 -11 22
15.5 3.4 15.9 6.0 12.3
18.5 4.3 15.3 8.3 10.9
280.6 2,007.0 283.2 600.0 75.1
15.9 54.0 32.6 31.0 3.5
1 7 8 -4 1
-35 20 16 48 64
5.7 2.7 11.5 5.2 4.7
8.9 2.4 10.7 3.4 2.9
1,227.9 8,681.0 1,070.8 2,509.0 291.4
9 94.0 5 647.0 8 119.9 9 124.0 12.1 - 3
15 9 13 27 -7
7.7 7.5 11.2 4.9 4.2
7.2 7.1 10.7 4.2 4.3
4.3 6.6 7.2 13.9 4.9 8.7%
12.3 9.1 8.0 16.1 5.2 9.5%
626.7 18.1 - 2 2 623.2 21.4 5 2,085.0 103.0 - 3 170.1 14.1 - 1 1 379.8 14.3 - 1 $19,930.6 $1230.6 0%
-80 -49 -36 -55 -30 -29%
2.9 3.4 4.9 8.3 3.8 6.2%
114.1 - 9 2,671.0 11.3 5 176.4 2,660.9 7.1 5 629.0 8,744.0 7.5 105.6 - 4 757.7 16.3 0 78.2 1,587.8 5.3 6% 8.7% $81,972.0 $7113.1
-68 -23 -5 -17 -6 -4%
a After-tax earnings from continuing operations excluding significant nonrecurring and extraordinary items, b After-tax earnings as a percentage of sales, def = deficit.
total earnings for the year totaled $7.11 billion, down 4% from 1988. Sales for the year were still up 6% over 1988, however, to almost $82 billion. Profit margins slipped to 8.7% from 9.5% in 1988. Lackluster end-use markets such as automobiles and housing had a negative effect on fourth-quarter earnings, according to some of the companies. Edgar S. Woolard Jr., Du Pont's chairman, noted softening in sectors of the economy important to the company. These included automotive, housing, and electronics, which, he said, depressed fourthquarter results. Dow Chemical cited price declines resulting from easing demand 12
February 19, 1990 C&EN
growth and increased supply in both ethylene glycol and vinyl chloride as well as softening in the North American construction market where products made from vinyl chloride are used extensively. Export markets also had an effect on fourth-quarter earnings. Although chemical exports held up better than had been anticipated, industry sources say prices for exported products fell during the quarter. This was especially true for polymers and some large-volume inorganics. The results of end-market forces ranged widely throughout the industry, especially in pricing. Government data show that prices of
chemicals and allied products in the fourth quarter were up just 0.6% from fourth-quarter 1988. And prices were down 0.6% from the third quarter. For the subcategory of industrial chemicals, which tend to dominate chemical company results, the price shifts were even worse. Industrial chemical prices for the fourth quarter averaged 0.6% below those a year earlier and were down 1.1% from the previous quarter. Chemical production for the fourth quarter was still ahead, according to government figures, rising 3.4% from fourth-quarter 1988 and 1.1% from the third quarter of 1989. However, increases in capacity negated
Fourth-quarter earnings rose for drug and diversified companies, but dropped for oil firms Sales
FOURTH-QUARTER 1989 Earnings8 Change from 1988
($ millions)
Sales
FULL-YEAR 1989 Profit margin"
Sales
Earnings9
($ millions)
Change from 1988
Profit margin"
Earnings
1989
1988
-10% -22 -56 -14
3.9% 6.7 1.4 4.4
5.0% 9.8 3.2 5.9
8 15 4 3
-12 42 -11 -28
4.8 5.1 3.2 1.3
5.9 4.1 3.7 1.8
3 14 1 12 7%
13 -11 29 -3 -6%
6.4 2.4 8.3 3.2 4.7%
5.8 3.1 6.5 3.6 5.3%
Sales
Earnings
1989
1988
-59% -15 -77 -27
1.8% 5.2 1.0 3.6
119.1 15% 4.9% $ 3,036.4 $i 1,610.0 13 23,973.0 6.8 3 115.1 8,493.8 4.6 1,458.0 13 32,800.0 6.4
-7 11 1 -42
4.8 4.7 3.0 0.6
6.0 4.9 3.3 1.0
25 -96 -28 -53 -17%
4.8 0.1 4.2 2.3 3.7%
1,405.0 21,948.0 3.9 275.0 11,380.0 3.4 2,942.0 35,656.0 6.4 358.0 11,357.0 5.3 5.0% $324,531.3 $15,158.3
OIL AND GAS COMPANIE=s American Petrofina Amoco Ashland Chevron Exxon Kerr-McGee Mobil Occidental Petroleum Shell Oil Sun Co. Texaco Unocal TOTAL
$
758.2 $ 13.5 319.0 6,089.0 22.0 2,200.0 320.0 8,900.0 26,550.0 798.9 15,141.0 5,049.0
1285.0 37.2 447.0 30.0
264.0 5,505.0 4.0 3,080.0 389.0 9,241.0 66.0 2,852.0 $86,164.1 $3196.7
12% 10 5 29 15 16 13 -4 1 13 9 7 12%
96,076.0 3,087.1 56,656.0 20,068.0
4,655.0 156.0 1,809.0 256.0
DIVERSIFIED MANUFACrURERS Allied-Signal Borden Du Pont Eastman Kodak
3,058.0 1,952.9 8,993.0 4,886.0
115.0 99.9 483.0 465.0
2 -2 8 8
11 6 -3 49
3.8 5.1 5.4 9.5
3.5 4.7 6.0 6.9
11,942.0 7,593.4 35,534.0 18,398.0
505.0 343.8 2,480.0 1,404.0
0 5 10 8
7 10 13 1
4.2 4.5 7.0 7.6
4.0 4.3 6.8 8.2
Engelhard FMC Ferro Corp. 3M
626.3 822.7 269.9 2,954.0
14.5 - 1 0 32.4 - 7 4 12.3 7 292.0
-25 -10 5 7
2.3 3.9 4.6 9.9
2.8 4.1 4.5 9.9
2,403.0 3,414.5 1,083.6 11,990.0
82.9 156.8 49.7 1,244.0
2 4 7 6
30 21 7 8
3.4 4.6 4.6 10.4
2.7 3.9 4.6 10.2
NL Industries PPG Industries Vulcan Materials TOTAL
239.4 20.6 1,424.2 101.4 257.7 23.7 $25,484.1 $1659.8
2 -37 -1 -1 -4 -6 5% 10%
1,000.9 170.3 - 1 13.9 8.6 2 465.2 5,734.1 7.1 7.1 2 113.4 1,076.2 9.4 9.2 6% 6.5% 6.2% $100,169.7 $ 7,015.2
13.3 17.0 27 8.3 8.1 -1 12.9 -17 10.5 8% 7.0% 6.9%
PHARMACEUTICAL COM PANIES A. H. Robins American Home Products Baxter International Bristol-Myers Squibb Merck Pfizer Rorer Group Schering-Plough Upjohn Warner Lambert TOTAL
1,455.4 1,640.2 1,961.0 2,360.3 1,781.1
253.0 304.4 139.0 339.8 367.9
1,494.0 133.3 403.5 44.7 776.9 111.1 727.9 80.2 1,043.4 92.3 $13,643.7 $1865.7
11 7 7 10 16
14 19 15 16 20
17.4 18.6 7.1 14.4 20.7
17.0 16.6 6.6 13.7 20.0
9 24 5 4 5 9%
-6 66 20 -3 19 15%
8.9 11.1 14.3 11.0 8.8 13.7%
5,671.5 727.3 10.3 1,182.2 86.5 8.3 3,157.9 471.3 12.6 2,907.3 311.0 11.8 412.7 4,195.8 7.8 13.0% $ 50,247.8 $ 7,351.4
5,379.8 6,747.0 7,399.0 7,056.9 6,550.5
859.8 1,102.2 446.0 1,439.3 1,495.4
9 5 8 6 10 5 13 6 8 7 7%
14 11 15 15 24 -8 40 21 -13 21 12%
16.0 16.3 6.0 20.4 22.8
15.2 15.6 5.7 18.8 20.3
12.8 7.3 14.9 10.7 9.8 14.6%
14.7 5.9 13.1 13.3 8.7 14.0%
a After-tax earnings from continuing operations, excluding significant nonrecurring and extraordinary items, b After-tax earnings as a percentage of sales.
the effects of rising output. The government's measure for capacity use fell to 87.6% in the fourth quarter from 89.1% a year earlier and from 88.0% in the third quarter. The fall in capacity utilization, though still slight, helped to put pressure on prices. One other factor that entered into the earnings picture for the fourth quarter was the unusually cold De-
cember weather along the Gulf Coast. This disrupted operations at a number of chemical plants, including those owned by Dow and Texaco. Of the groups of companies surveyed, chemical companies (which derive 50% or more of their total sales from chemicals) showed the worst decline in fourth-quarter earnings. A group of 12 oil companies
was the only other group surveyed whose earnings declined; their combined earnings dropped 17% to a total of almost $3.20 billion. Sales for this group increased 12% to $86.2 billion. Profitability for the oil companies was much worse than for chemicals, as it usually is; they registered an average profit margin of 3.7%, down from 5.0% in fourthquarter 1988. February 19, 1990 C&EN
13
Business
Takeda's vitamin C plant starts up
Petrochemicals fare poorly in fourth quarter To get a picture of petrochemical performance, one can look at a chemical company such as Quantum Chemical, but a broader picture emerges from chemical earnings at the major oil companies, which are dominated by basic petrochemicals. And the picture in the fourth quarter is not very good. Overall chemical earnings at eight large oil companies that report net earnings for chemicals fell an average of 4 8 % in the quarter to about $674 million. This resulted in an 8 % decline for the full year to about $4.52 billion. Unocal, whose 8 8 % decline in the quarter was the largest for the group, says its fourth-quarter results for chemical operations reflect higher fertilizer costs caused by temporary shortfalls of natural gas supplies and extended plant downtime for maintenance.
$ Millions
Amoco Chevron Exxon Mobil Occidental Petroleum Shell Oil Texaco Unocal TOTAL
Texaco, which had the second largest decrease among the eight in the fourth quarter, says results were adversely affected by continuing price declines for olefins and derivative products. These declines resulted from a continuing oversupply of product in the marketplace. Plant disruption brought on by severe weather in December also reduced earnings about $15 million, the company says. Exxon saw its earnings fall about 6 0 % in the quarter and said that this was a result of rising feedstock costs and expanded industry production capacity. Occidental Petroleum had the smallest decline, at 1 6 % , which it says resulted largely from lower margins in petrochemicals, primarily reflecting lower sales prices industrywide.
EARNINGS ON CHEMICAL OPERATIONS Fourth quarter Full year % change 1989 1988 1988 1989
$ 79.0
$ 145.0
61.0
115.0
136.0 82.0 214.0
340.0 131.0 256.0
84.0 16.0 2.0
$674.0
193.0 111.0 16.0 $1307.0
% change
-46% -47 -60 -37 -16
$ 481.0 378.0 1080.0 573.0 1056.0
$ 684.0 455.0 1306.0 613.0 878.0
-30% -17 -17 -7 20
-56 -86 -88 -48%
630.0 268.0 49.0 $4515.0
673.0 245.0 51.0 $4905.0
-6 9 -4 -8%
Results from 11 diversified firms being compared with very strong that produce chemicals showed an year-earlier quarters. First-quarter increase in earnings of 10% to $1.66 1990 earnings will still be compared billion on a 5% sales increase to with a quarter that had shown a $25.5 billion. Thus the profit mar- 22% year-to-year increase, but after gin for the group increased to 6.5% that the comparisons will be made from 6.2% in the fourth quarter a with quarters that were already year earlier. showing signs of a slowing chemiFor the other group surveyed, 10 cal economy. If economists are correct in predrug producers, earnings increased in the fourth quarter 15% to $1.87 dicting the so-called soft landing billion on a sales rise of 9% to $13.6 for the U.S. economy instead of outbillion. The profit margin for this right recession, the chemical indusgroup was 13.7%, up from 13.0% in try, through 1990 at least, may well the fourth quarter of 1988. settle down to moderate sales and For this year, chemical producers earnings growth. Moderation, howare h o p i n g that e a r n i n g s have ever, will be a big change for an dropped about as far as they will industry that up until the second go. They may be right in that 1989 quarter of 1989 saw earnings grow third- and fourth-quarter earnings, at more than 20% for 11 consecuwhich showed declines, were still tive quarters. • 14 February 19, 1990 C&EN
One of the largest Japanese investments in the U.S. chemical industry has begun operating with the dedication earlier this month of Takeda U.S.A/s vitamin C plant in Wilmington, N.C. The $90 million facility has a capacity of 11 million lb per year and boosts total domestic vitamin C capacity about 35%. Current U.S. capacity of just over 30 million lb is dominated by Hoffmann-La Roche's facility in Belvidere, N.J. The new Takeda plant will serve what the company sees as growing U.S. and Canadian markets, and its product also will replace imports of vitamin C from Japan. At the dedication, Hirohiko Ichikawa, president of the fine chemicals division of parent company Takeda Chemical Industries of Osaka, Japan, said the new plant underscores the company's commitment to the U.S. He added: "It is an important step in our global strategy of expanding production and research capability in America, as well as Europe and Asia/' The new vitamin C unit is adjacent to a vitamin B-l plant that Takeda U.S.A. has had in operation at its 1500-acre Wilmington site since 1985. Ichikawa said there are plans for more facilities at the site, but he was not specific about the type of plants and the timing. Takeda Chemical Industries is Japan's largest pharmaceutical company and the seventh largest drug producer in the world. It also claims to be the world's second largest producer of bulk vitamins. In fiscal 1989 the company had total worldwide sales of $5.2 billion and R&D expenditures of $343 million. For several years Takeda has had an R&D partnership with Abbott Laboratories to conduct clinical research in the U.S. on drugs created by Takeda. In 1989 this effort was restructured as a corporate entity under the name of TAP Pharmaceuticals. It is marketing Lupron Depot, a sustained-release preparation for the treatment of prostate cancer. Michael Heylin
