BUSINESS
Chemical Earnings' Strong Growth Continues in Second Quarter William J. Storck, C&EN New York Earnings of major U.S. chemical companies grew strongly in this year's second quarter, averaging 30% and continuing a string of year-toyear gains. Strong earnings growth also was reported by major diversified companies that produce chemicals, although total earnings for U.S. oil firms fell. In addition, average profit margin for chemical firms hit 7.0%, the highest level in years, as earnings continued to increase at a much
greater rate than sales—in the second quarter about three times as fast. However, this is a much smaller multiple than in many recent quarters and may indicate that costcutting and productivity improvement measures i m p l e m e n t e d by chemical companies over the past few years have contributed about all they can. Nevertheless, the cost efficiency steps plus improved capacity utilization in many areas, notably plastics, are still providing plenty of earnings leverage. In addition to a possible slow-
down of the effects of efficiency moves, there are some further unsettling aspects in many of the major markets for chemicals, notably in agriculture, construction, and automobiles. Agriculture is still in the doldrums after more than five years of farm recession in the U.S. There are signs, however, of relief ahead, The Department of Agriculture recently said that land values in the farm belt may have ended their slide and in some cases have already started to improve. This bit of optimism in the agricultural economy
Chemical industry leaders for the second quarter... Earnings a
Sales Rank 1987
1 2 3 4 5 6 7 8 9 10
Rank $ Millions 1986
Dow Chemical $3408.0 Monsanto 2025.0 Union Carbide 1658.0 W.R.Grace 1147.4 American Cyanamid 1087.3 Hercules 688.1 Rohm & Haas 597.3 B.F.Goodrich 551.1 National Distillers 550.6 Air Products 527.8
1 2 3 5 4 7 8 6 13 9
Dow Chemical Monsanto American Cyanamid Union Carbide Rohm & Haas Hercules Ethyl Air Products B. F. Goodrich W. R. Grace
Profitability $ Millions
Rank 1986
$315.0 154.0 75.6 69.0 62.1 60.6 47.8 41.0 38.3 36.0
1 2 4 8 5 3 6 7 11 22
$ Millions
Rank 1986
$561.0 292.0 137.1 135.0 119.5 109.3 94.1 82.2 58.6 50.9
1 2 3 5 6 4 7 8 9 17
Earnings as Rank % of sales 1986
15.5% 11.4 10.8 10.4 10.4 9.9 9.8 9.2 8.8 8.5
International Flavors Ethyl First Mississippi Rohm & Haas Betz Laboratories Loctite Nalco Chemical Dow Chemical Hercules Freeport-McMoRan
2 3 24 6 5 4 8 9 7 1
. . . and for the first six months of 1987 |
Rank 1987
1 2 3 4 5 6 7 8 9 10
Rank $ Millions 1986
Dow Chemical $6423.0 Monsanto 3891.0 Union Carbide 3339.0 W.R.Grace 2110.0 American Cyanamid 2101.4 Hercules 1352.4 National Distillers 1207.3 Rohm & Haas 1130.4 Air Products 1054.9 B.F.Goodrich 1036.7
1 2 3 5 4 7 12 8 9 6
Dow Chemical Monsanto American Cyanamid Union Carbide Rohm & Haas Hercules Ethyl Air Products International Flavors National Distillers
Note: For 30 chemical companies listed on page 18. a Af ter taxes.
16
August 17, 1987 C&EN
Profitability
Earnings 1
Sales
Earnings as Rank % of sales 1986
International Flavors Ethyl Betz Laboratories Rohm & Haas Loctite Nalco Chemical Dow Chemical Hercules Lubrizol Air Products
15.5% 11.6 10.7 10.6 9.8 9.6 8.7 8.1 7.9 7.8
1 4 3 7 5 6 11 8 13 12
Chemical industry second-quarter 1987 results
• • • •
Sales increase 10% Earnings soar 30% Profit margins hit 7% Production rises 4.3%
•
Prices climb 3.6%
Sales
Earnings
% change from year-earlier quarter 10
% change from year-earlier quarter 401
1985
1986
1987
1985
1986
1987
Profit margins
Production
Prices
After-tax earnings as % of sales 8
% change from year-earlier quarter 6
% change from year-earlier quarter 4f
1985
1986
1987
1985
1986
1987
1985
1986
1987
Sales this year will increase about 10%, but earnings will jump 25%, boosting profit margins to 5.7% Annual sales
Annual earnings
Annual profit margins
$ Billions
$ Billions
After-tax earnings as % of sales
1976 77 78 79 80 81 82 83 84 85 86 8 7 a
1976 77 78 79 80 81 82 83 84 85 86 87
1976 77 78 79 80 81 82 83 84 85 86 87 B
Note: All sales, earnings, and profit-margin data are based on combined results of 30 companies listed on page 18. a C&EN estimates.
August 17, 1987 C&EN
17
Business
Earnings and profit margins rise sharply for major chemical companies in second quarter SECOND-QUARTER 1987 Change from 1986 Sales Earnings" Sales Earnings ($ millions)
Air Products0 American Cyanamidc Aristech Betz Laboratories Cabotc
Profit margin6 1987 1986
7.8% 7.0 7.0 10.4 4.5
8.0% 5.5 5.6 10.6 4.6
42 36 39 -1 379
5.4 5.6 9.2 11.4 10.8
4.1 4.8 8.0 11.9 3.1
88 14 -27 25 0
-10 32 61 448 1
8.5 4.6 6.9 3.1 8.8
31.0 2.6 9.5 20.6 154.0
23 4 30 2 8
29 def 18 9 4
202.6 550.6 485.9 311.9 68.6
19.8 22.0 22.3 13.7 4.1
10 53 10 8 -8
28 315 56 20 -29
Reichhold Chemicals na Rohm & Haas0 597.3 1,658.0 Union Carbide0 160.3 Vista Chemical 356.5 Witco0 Total 15 larger companiesd $14,283.1 Total 14 smaller companies01 $ 2,349.6 $16,632.7 GRAND TOTALd
na 62.1 69.0 10.7 17.6 $ 978.4 $ 187.7 $1166.1
527.8 1,087.3 228.5 97.5 319.4
$ 41.0 75.6 16.1 10.1 14.5
Chemed Crompton & Knowles Dow Chemicalcd Ethyl0 First Mississippi
98.8 64.7 3,408.0 420.3 90.1
5.3 3.6 315.0 47.8 9.7
10 16 20 4 40
Freeport-McMoRan H. B. Fuller B.F.Goodrich0 W. R. Grace0 Hercules0
311.9 151.3 551.1 1,147.4 688.1
26.5 6.9 38.3 36.0 60.6
International Flavors International Minerals0 Loctite Lubrizol Monsanto0
199.9 460.5 96.5 267.1 2,025.0
Nalco Chemical National Distillers0 Olin° Pennwalt Petrolite
$
8% 6 19 12 3
na 5 3 14 3 9% 19% 10%
5% 34 50 10 1
na 11 92 2 1 32% 19% 30%
FIRST-HALF 1987 Sales Earnings8 Change fr om 1986 ($ millions) Sales Earnings8
$ 1,054.9 2,101.4 437.2 186.1 650.6
82.2 137.1 29.6 19.8 33.9
6% 8 13 9 0
189.9 120.5 6,423.0 809.3 161.4
9.6 6.0 561.0 94.1 12.0
11 10 15 3 24
34 25 40 13 191
17.8 4.0 3.1 0.7 8.7
530.7 288.7 1,036.7 2,110.0 1,352.4
34.2 10.6 42.1 47.7 109.3
63 15 -30 20 1
-12 31 1258 260 4
15.5 0.6 9.9 7.7 7.6
14.9 def 10.9 7.3 7.9
378.8 916.5 186.2 541.6 3,891.0
58.6 21.2 18.3 42.7 292.0
22 7 32 1 8
27 def 45 17 10
9.8 4.0 4.6 4.4 6.0
8.4 1.5 3.2 3.9 7.8
394.2 1,207.3 958.6 588.4 132.5
37.9 50.9 46.7 26.1 8.1
9 45 6 6 -12
23 122 21 3 -30
na 1,130.4 3,339.0 312.1 690.4 $27,671.5 $ 4,448.5 $32,119.9
na 119.5 135.0 22.0 32.5 $1805.2 $ 335.3 $2140.5
na 10.4 4.2 6.7 4.9 6.9% 8.0% 7.0%
1.4 9.8 2.2 7.5 5.0 5.7% 8.0% 6.0%
$
na 2 4 8 0 7% 14% 8%
21% 30 64 6 6
na 27 42 13 3 34% 19% 31%
a Earnings from continuing operations, excluding major nonrecurring and extraordinary items, b Earnings as a percentage of sales, c One of the 15 largest companies, d Averages for 12-month running data do not include Dow, where figures include a major nonrecurring item, and Aristech, Vista, and Reichhold, for which not all figures are available, def = deficit, na = not available.
could foreshadow an increase in economic activity. If that comes about, it could benefit pesticide producers quickly, but it could be a long time before fertilizer makers see much help as they struggle to raise capacity use to more respectable levels. Construction activity has slowed recently, especially in the residential area. New housing starts (seasonally adjusted) have fallen in each of the past five months, according to the Department of Commerce. Perhaps more chilling is the automobile industry. Domestic auto makers are entering the new model year with large inventories of unsold 1987 model-year cars. These inventories exceed more than two 18
August 17, 1987 C&EN
months' supply in some cases and may put a damper on chemical sales to the auto industry through the rest of this year. Further, the big inventories of unsold autos indicate that U.S. makers were unable to take much advantage of the declining value of the dollar against the Japanese yen in their battle against imports. Further, Korean auto makers were able to maintain their prices in relation to American autos as the Korean currency fell along with the dollar. In spite of the drag of these markets on overall chemical activities, U.S. chemical shipments in the second quarter increased almost 8% on a seasonally adjusted basis from the
same period a year ago. However, production of chemicals and allied products, as reported by the Federal Reserve Board, increased just 4.3% as chemical producers cut inventories going into the normally lackluster third quarter. The 4.3% increase is the lowest since firstquarter 1986, when chemical output rose just 3.8%. Some of the best news of the quarter was in chemical pricing, which also did a lot to improve earnings leverage in the three-month period. According to Labor Department figures, prices of chemicals and allied products rose 3.6% from last year's second quarter. This ends a string of falling year-to-year price
the smaller firms. For the 15 larger chemical companies surveyed, earnings FIRST-HA LF 1987 12-MONTH RUNNING DATA rose an average of 32% Profit m argln Change from 1986 Profit margin 1987 1986 Sales Earnings 1987 1986 (compared with the same 7.8% 7% 7% 7.4% 7.4% I 15 firms' earnings in last 6.8% year's second quarter) to a 5.4 37 6.5 8 4.7 6.0 combined total of $978 mil6.8 4.7 na na na na lion. Sales for these firms 10.7 5 10.9 -1 10.1 10.8 increased 9% to $14.3 bil-7 5.2 1 5.2 4.9 4.8 lion. Their combined prof1 -1 5.0 4.2 4.7 4.8 it margin increased to 6.9% 5.0 4.4 -3 17 4.3 3.6 from 57% in last year's sec8.7 7.2 5 362 7.5 1.7 ond quarter. 11.6 10.7 4 24 11.6 9.7 For the 14 smaller firms, 7.4 3.2 4 72 4.3 2.6 earnings increased an av6.4 11.9 29 -15 7.2 11.0 erage of 19% to a combined 3.7 3.2 16 33 3.8 3.3 total of $188 million, and 4.1 0.2 -32 3.3 def def sales rose an equal amount 11 2.3 -56 0.7 0.8 1.7 to $2.35 billion. Since earn8.1 2 7.9 7.9 23 6.6 ings and sales both rose 15.5 14.9 23 24 14.2 14.1 19%, average profit mar2.3 16 def 0.3 def def gin remained at 8.0%. The 27 9.8 9.0 32 8.7 9.1 h i g h e r figure indicates 7.9 4 6.8 23 7.5 6.4 higher profitability of the 1 7.5 7.4 38 4.6 3.3 smaller firms over the larger ones. 9.6 8.5 7 2 8.6 9.1 4.2 2.8 -3 36 In comparing figures for 4.0 2.8 4.9 3 4.3 9 3.3 3.2 this year's first half, the 4.4 7 4.6 230 4.6 1.5 pattern was much the same 6.1 7.7 -14 -31 5.3 6.7 as in the second quarter. Combined first-half earnna 1.0 na na na def ings for the 29 chemical 2 10.6 8.5 25 9.2 7.5 companies increased 31% 4.0 2 3.0 47 2.9 2.0 from first-half 1986 to a 7.0 6.7 na na na na total of $2.14 billion. Com4.7 -4 4.6 3 4.8 4.5 bined sales rose 8% to a 6.5% 5.2% 0% 4.6% 31% 3.6% 7.5% 7.2% 10% 17% 7.2% total of $32.1 billion. Av6.8% 6.7% 2% 5.5% 28% 5.0% 4.0% erage profit margin for the group increased to 6.7% from 5.5% during the first half of 1986. For the 15 larger firms comparisons that lasted for the four of the group, combined earnings previous quarters. advanced 34% to a total of $1.81 All these factors translated into billion on a 7% sales increase to higher earnings and sales for the $27.7 billion. Profit margins for the chemical industry. For 29 of the 30 group increased to an average of major chemical companies surveyed 6.5% from 5.2% in first-half 1986. by C&EN (Reichhold Chemicals had For the 14 smaller companies, not reported by press time), com- which are oriented more toward bined earnings increased 30% from value-added products, earnings grew last year's second quarter to a total an average of 19% to a combined of $1.17 billion. Composite sales in- $335 million, and sales increased creased 10% to $16.6 billion. As a 14% to a total of $4.45 billion. Profit result, the average profit margin margins for the group averaged (earnings as a percentage of sales) 7.5%, up from 7.2% in first-half 1986. for the 29 firms increased to 7.0% Plastics were important contribufrom 6.0% in second-quarter 1986 tors to higher earnings at many of and 6.2% in this year's first quarter. the companies. For instance, Dow The larger companies improved Chemical executive vice president their earnings much more than did Robert M. Keil says: "Strong deb
Ground rules for C&EN earnings analysis
5
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 29 oil and 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 5 0 % of its sales in chemicals. That is why Du Pont, 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, agricultural chemicals, and specialty derivatives. In listing earnings, the survey gives after-tax income for continuing operations before nonrecurring items and extraordinary charges. Foreign currency translations are included.
mand for basic chemicals and plastics continued in the second quarter as world economies maintained a moderate but sustained rate of growth. Polyethylene and Styron polystyrene resins were major contributors among basic plastics." The importance of plastics growth is reflected in B. F. Goodrich's results. Sales of polyvinyl chloride and intermediates for the second quarter increased 19% over the yearearlier period to $267 million. However, operating income from this division was up 69% in the same period to $35.4 million. Agriculture, still generally depressed in the U.S. economy, provided some mixed results among the companies. For instance, American Cyanamid's earnings report states that the "agricultural group registered significantly higher operating earnings as a result of dramatically higher worldwide sales of crop protection, vegetative, and pest control chemicals." However, for Monsanto, in spite August 17, 1987 C&EN
19
Business Earnings were down at many oil firms, but up at diversified companies SECOND-QUARTER 1987 Change from 1986 Sales Earnings
Chemical sales as % of total
OIL AND GAS COMP/ k N I F S 23% American Petrofina 15 Amoco Ashland 20 33 Atlantic Richfield
Sales Earnings8 ($ millions)
$
610.4 $ 28.7 5,629.0 311.0 1,900.0 40.0 330.0 4,103.0
Profit margin6 1987 1986
FIRST-HALF 1987 Sales Earnings8 Change from 1986 ($ millions) Sales Earnings
Profit marglnb 1987 1986
30% 547% 13 31 6 -51 16 120
4.7% 5.5 2.1 8.0
0.9% $ 1,149.9 10,824.0 4.8 3,500.0 4.6 4.2 7,847.0
$ 48.5 571.0 32.0 569.0
18% def 0% -1 -74 -3 27 0
4.2% 5.3 0.9 7.3
def 5.2% 3.4 5.7
Chevron Exxon Kerr-McGee Mobil
9 8 14 4
7,300.0 20,162.0 726.4 13,529.0
194.0 1150.0 27.3 304.0
9 12 16 11
-32 3 757 -48
2.7 5.7 3.8 2.2
4.3 6.2 0.5 4.8
14,100.0 39,597.0 1,273.2 26,282.0
344.0 2227.0 47.5 556.0
-8 -2 -5 1
-45 -46 88 -46
2.4 5.6 3.7 2.1
4.1 10.2 1.9 3.9
Occidental Petroleum Phillips Petroleum Shell Oil Sun Co. Texaco
13 17 20 3 4
4,328.0 2,643.0 5,487.0 2,380.0 8,500.0
59.0 3.0 266.0 90.0 240.0
13 13 24 -4 8
51 def 21 -10 0
1.4 0.1 4.8 3.8 2.8
1.0 def 4.9 4.0 3.0
8,485.0 5,182.0 10,269.0 4,610.0 17,000.0
14 136.0 -29.0 -5 9 374.0 128.0 - 2 1 358.0 -3
20 def -24 -48 -30
1.6 def 3.6 2.8 2.1
1.5 1.9 5.3 4.2 2.9
DIVERSIFIED COMPA N I F S Allied-Signal Borden Du Pont Eastman Kodak
24 33 44 21
2,846.0 1,601.7 7,841.0 3,210.0
69.0 62.7 486.0 313.9
15 29 13 19
-46 21 7 90
2.4 3.9 6.2 9.8
5.2 4.2 6.6 6.2
5,483.0 3,030.2 14,942.0 5,860.0
213.0 106.7 877.0 539.9
11 28 6 16
-29 20 2 118
3.9 3.5 5.9 9.2
6.1 3.7 6.1 4.9
Eli Lilly Engelhard FMC GAF
19 29 47 51
1,017.6 600.9 828.5 214.2
150.3 18.0 133.6 29.7
16 22 3 8
20 17 172 34
14.8 3.0 16.1 13.9
14.3 3.1 6.1 11.2
2,076.6 1,140.0 1,552.8 405.3
355.5 31.6 158.9 50.2
11 12 0 8
19 18 112 35
17.1 2.8 10.2 12.4
16.0 2.6 4.8 9.9
KaiserTechc Koppers 3M Merck
12 42 15 9
584.2 -359.1 24.0 389.1 2,381.0 240.0 1,249.3 235.1
5 5 9 24
def 35 21 36
def 6.2 10.1 18.8
def 4.8 9.1 17.2
1,121.5 -390.2 21.0 660.8 453.0 4,588.0 2,360.4 436.3
3 5 8 23
def 22 20 32
def 3.2 9.9 18.5
def 2.7 8.9 17.2
Morton-Thiokol PPG Industries Tyler Vulcan Materials
33 18 40 27
557.9 1,330.0 277.6 284.9
36.4 102.4 5.2 38.7
14 10 12 11
21 12 21 18
6.5 7.7 1.9 13.6
6.1 7.6 1.7 12.8
1,077.7 2,590.0 533.7 497.7
7 10 12 9
10 18 20 23
6.7 7.3 1.2 10.1
6.6 6.9 1.1 8.9
72.6 189.3 6.2 50.1
a From continuing operations excluding major nonrecurring and extraordinary items, b Earnings as a percentage of sales, c Includes nonrecurring item, def = deficit.
of a 3% increase in sales of crop chemicals to $372 million, operat ing income from these chemicals fell almost 5% to $147 million. Overseas business helped some companies. For instance, of Rohm & Haas' 11% earnings gain, chair man Vincent L. Gregory Jr. says: "The earnings improvement in our ongoing operations reflects the sharp gains posted in the businesses outside the U.S. The European and Pacific regions benefited from high er sales volume, better currency re lationships, and a lower tax rate. In the North American region, earn ings were lower in the specialty chemical segments, with the excep tion of plastics." Du Pont, the largest U.S. chemi 20
August 17, 1987 C&EN
cal producer, cited an 8% rise in overseas sales v o l u m e a n d 11% growth in domestic volume of chem icals and specialty products. Aver age selling prices, according to Du Pont, increased 4% over the same period last year. In addition to benefiting the com panies primarily involved in chem ical production, chemical operations came to the aid of oil companies, which found themselves suffering in the second quarter because of low margins in their product oper ations. At seven of the oil firms surveyed that also report net in come from chemical operations, low er raw material prices and higher demand for petrochemicals pushed up earnings in the second quarter.
The seven firms—Amoco, Atlantic Richfield, Chevron, Exxon, Mobil, Shell, and Texaco—registered a com bined earnings increase of 71% for the second quarter compared with the same quarter last year to $659 million. Mobil registered the largest in crease among the seven; its net in come from chemical operations soared 134% to $75 million. Earn ings from chemicals also more than doubled at Chevron, whose net in come rose 110% to $65 million. The smallest increase was a still healthy jump of 33% at Shell, whose chemi cal earnings totaled $101 million. The other increases were Exxon 83%, Atlantic Richfield 71%, Texaco 58%, and Amoco 49%. Π
