...L. . ~ i*qaggr:
.Y. JAMES M. CROWE, Executive Editor, lndusfrial and Engineering
Chemimy, Washington, D. C.
’
.
of h c i a l statistics related to the chemical process industry, the years 1952 and 1953 witnessed a continuation of the growth in assets and sales of I&EC’s list of 100 chemical p r o m companies. The assets of this group in 1951 were $29,256,842,000, in 1952 they grew 6.8% to $31,921,270,000 and in 1953 they went up 7.6% to a total of )34,359,550,000. Net eales a h increased during the paat two y m rising from $29,380,647,000 in 1951 to 80,390,900,000 in 1952 and $32,202,249,000 in 1953. Thw were inereasas of 3.4 and 6.3%, respectively. On the net income side results were not as good. There was a fall-off of 5.1% in 1952, totals being $2,869,835,000 in 1951 and $2,731,688,000 in 1952. The group as a whole improved in 1953 with net income of $2,911,208,000, an increase of 6.6% over 1952 but only 1.44% over 1951. An important factor in the net income picture ever since the beginning of World War I1 has been the big cut taken by federal income taxes. In 1939 the total paid by I&EC’s selected list of 100 companies was $131,359,000, in 1951 a t the time of the Korean War it was $2,971,491,000, an increase of 2160%. Federal income taxes as a per cent of net sales went from 2.06 in 1939 to 10.1 in 1951 and eased off to 7.33 in 1953. As a per cent of net income the figures for the same years are 19.4, 103.0, and 81.1, respectively. The removal of the excess profits tax by the Congress should improve the net income picture materially in 1954. However, there are enme notes of caution as to sales expects, tions. It will he remembered that large inventoriea brought on a mild mession of short duration in early 1952. This waa replaced with incressed production and salea during the latter part of that year. This high level of business activity reached a peak early in 1953 when the over-all Federal Reserve Board Index of Industrial Production reached a top of 138. The index of Industrial Chemical Production reached 161 in June of that year. But a slackening of the defense &ort and a hard money policy of the new Adminiitration were primary factors in a su!xquent decline in industrial activity for the remainder of 1953 an loCn
. .
ASSETS AND SALLS Ulim d &l*n
-1
I
1939
VALUE
II
1951
OF THE DOLLAR
1952
1953
II
1 B i !Il
INDUSTRIAL A N D ENGINEERING CHEMISTRY
1088
Vol. 46, No. 6
PRWITS, TAXES, AND DIVIDENDS CLrmiul. u d A k d W r k Omp
I
1947
1948
1949
I950
I951
I952
1953
I
1947
1948
1949
I950
1951
I952
I953
I
Currently, the FRB index of industrial pmduction has remained on a plateau at 147. The industrial chemical index has been standing at 146 for a number of months. All during this period, expenditures for plant and equipment by the cbemicah and allied pmducta i n d u s ~ e shave reached successive p& under the stimulus of certificates of n k t y permitting fast amortization of defense construction. This program has evidently p d ita pak, however, aa capital expenditures for 1954 are projected at lower totals (about $1.3 billion) than those of the past two years.
CAPITAL AND WORTH lilliini 01 d l l u r 35 28
I
Financial Records 14-
In presenting an over-all picture of the 6nancial resulta of I&EC's selected list of 100 companies this year, recognition baa been given to the broad and varied pattern of the chemical process industries. Summaries have been given for subgroups comprkhg the chemical colossus. It is not easy to fit many modern diversified industrial organizatiom into narrow brackets, but in general we have been able to classify the list of 100 companiesinto the followingp u p :
' I .I 0
H3)
1951
1952
1953
1.
Chemical: basic and intermediate chemicals manufacture.
2.
Chemical Pracess: application of chemical enginedug processes during manufacturing operations. 24 com-
9.
Drug and Pharmaceutical: medicinal chemical and phsrmaceutical preparation manufacture. 11 companies. ExfracHve and Mining: ore and mineral extraction. 13
27 companies.
I
OPERATING INVESTMENT
pSlu.33.
4.
companies.
6.
Petroleum: oil and natural gas producers and refiners. 10 companies. Pulp and Paper: pulp and paper manufacture. 7 com-
7.
Rubber:. Rubber and rubber products manufacture. 4
5.
palues.
compames. 8. Synthdc Flbor: rayon and other synthetic fibers manu-
IA IO
facture. 4 companies.
1951
1952
1953
The purpose of such a classification is clear. It ia to avoid the confusion of mixing apples and peaches as much as possible, and to clarify p r o w made by di6erent eqnente of the chemical proceas industries. Although chemistry is truly a common denominator for each of the above industries, the business side of each is such as to q u i r e a separate accounC ing. For example, expenditures for research and develop
-
IlIM 1964
INDUSTRIAL A N D ENGINEERING CHEMISTRY
1oB9
ment, as a function of d e s , vary widely from industry to indwtry. As a rule of thumb, the foUowing diEer8ntiation for several of the above industries has been developed from experiencewithin each m. Res.onch Expendilun
Factor: we=
Raremch Amd Sdes % ofSdes Growth %" Chemiul ................. 2.50 Petroleom ................ 0.75 Rubber .................. 1.10
....
1.75
9.00 4.50
1.00
16.75
Growth % Divided Research% 3.m 6.00
3.60 3.50
Industry Progress
While it ia decidedly difficult to single out special industry group for accolades, perhaps the fertiliser and rubber industries are so deserving. Both industries were on the verge of bankruptcy in the middle 1930's hut today the financisl health and investment stature of both are singulsrly good. The chemicalization of fertiWr and rubber industriea has progressed rapidly over the past two decades, and external iduences have benefited both industries. In the case of the fertilizer companies, there was the government program of crop price supporta which gave agriculture a new laase on life, and there were doubtleas other factors 88 population growth, farm mechmination, etc. In the w e of the rubber companies, the arrival of the age of h i polymers-plastics, synthetic rubber, synthetic f i b t o g e t h e r with the continuing growth in the tramportation industry completely changed the character of the industry. In particular, the commercial development of synthetic rubber reduced the industry's d e pendence on natural rubber, with ita vagaries of price, and gave the rubber industry a new look. Two industries with brilliant records over the peat decade, the synthetic fiber and pharmmutical group, have today f d e n on hard times. But it would be a poor bet to expect a continuation of d e p d rayon markets and di5cultiea with some of the new fibers. 8imilarly, we may hope that the pharmaceutical industry's great emphasis on m r c h will
RATE OF RETURN
DIVIDENDS
SALES AND PLANT INVESTMENT
I
Wdn 6
hnnl 6
1090
INDUSTRIAL AND ENGINEERING CHEMISTRY
Vol. 46, No. 6
C A L E S GROWTH
TAXES AND INCOME EIlimr 11 dollon
Fifty companies having most rapid growth in Selected net roles during period 1951-53. from I&EC's list of 100 chernicol process companies NEl SALES
1953
par cant Incrrosr
243,576 3,705
167.0 153.0
151,850 34,757 168,186
229,055 48,554 228,250
50.8 39.7 35.7
66.258 120,269 43.109 23,736
88,837 160.W2 56,590 30,837
34.1 33.0 31.3 29.9
170,068 115,750 339,586 100,263
219,916 149,294 430,385 127.003
29.3 28.9 26.8 26.7
17,749 610.004 272,845
22,461 762.307 340,617
26.5 24.9 24.8
59,211 61,380
24.5 23.3
52.954 19,073 112,196
23.3 22.8 22.6
212,491 65,107
20.6 19.7
Thousods of Ddlnrs 1951 1.
Mathiason Cbcmied
S
m 1953
17. 18. 19.
1
I-
1.200
I-
20. 21. 22.
23. 24.
Pennsylranla Salt Manufacturing co.. ........ 47,555 T e ~ e ~ sCarp.. s e ....... 49,790 Smith, Kline & French Laboratories. ........ 42,944 ScheringCorp.. ........ 15,544 MarathonCorp......... 91,553 Libbsy-Owens-Ford Ghss Co............ 176,165 American E& Corn.. 54,389 Dewey and Nmy Chemiul co.. ............. 29,183 ShellOilCo.. . . . . . . . . . . 1,072,434 AmeriunAgriiculhue Chemical Co.. . . . . . . . . 51,957 Vick ChsmiulCo.. . . . . . 51,085 Eartrmn Kodak Co. .... 542,285 Tcnncucc Rodtlcti & Cbemicsl Corp.. ...... 26,186 SinclairOilCorg. ....... 808,982 Cohte-Pahalive-Peet 223,802 co.. CaULln Cow. of Arne,.. . . 13,412 Kimberly-Clark Carp.. .. 142,606 VLgini*-Car0lin* Chemi71,894 cil Carp.. ............ E. I. du Pout de Nemows & co., hC.. .......... 1,545,653 Atlas Powder Co.. ...... 51,673 Rohm & Haas Co.. ...... 106,896 Crown Zellarbach Corp.. 225,769 National Lead Co.. ...... 389.941 Fittsburgh P*te Glass co.. ................ 404,203 Clumpdon Paper & Fibre co.. ................ 106,380 118.131 Air Reduction Co., he. Standud OU Co. (In&1,539,120 ma) ................ Standud Oil Co. (Callfmni.) .............. 975,378 Union Cubids m d Car927,520 bon Carp.. ........... Genmal Aniline & Bilm cmp.. ............... 99,538 TeusCo... ............ 1,416,806 Goodyear Tire and Rub1,101.141 btoC0 1ndusM.l Rayon Corp.. 64,059 sundud oil CO. m e w
.
30 0 1 1 1-4
25. 26.
27. 28. 29.
0
1939
1951
1952
1953
30. 31.
32. 33. 34. 35.
STOCK PRICE AND EARNINW RATIO Dollon
40
Avenge
Rics b r n i n s 30
36. 37. 38. 39. 40. 41. 42. 43.
44. 45. 46. 47. 48 49. 50.
.....
.
................
.
Jersey). .........
3,785.990
34,534 1,269,551
18.4 18.4
61.342 59.933 633,649
18.1 17.3 16.9
30.536 935,464
16.6 15.6
257,394 15.397 163,621
15.0 14.8 14.7
82,126
14.3
1,765,432 120,676 252,765 436,051
14.2 13.8 12.9 11.9 11.8
451,965
11.8
118,480 131,412
11.1 11.2
58,788
1,709.511
11.1
1,080,425
10.8
1,025,833
10.6
109,600 1.558.814
10.0
1,210,509 70,302
9.9 9.8
4,137.745
9.3
10.0
I
produce again SulKiciently profitable reaults to support such ambitious mearch progrsms. Expansion venur Comp.(ilion
In the broad sweep of chemical industq expansion then, there arecertainto be industries which benefit f m chemicalization of their pro-, but from anothm point of view, the entrance of Borne chemical pmoess companies into epherea of activity normally resenred to chemical mandacturing industry p r o p can be an upsetting factor in many phases of marketing, h c e , and resesrch. In the field of petrochemi&, for example, petroleum and other compmies controlling a natural OLB BOUI‘CB have bv a “lonical” nmma ehblished chemical &ufactuhg a c t h i e s upgr;rde their raw materisls. In the caze of the petroleum industry, this decision requid a recaetingof -from barrels a day to pounds a year, from 7 wta a gallon to 20 cents a pound. The fact of the matter is that Borne of theze companieshave not gone all the way in recastingtheir 4#~0a~h,a n d m not a d e q ~ ~ t e l y quipped to market large volumes of petrochemicals e5ciently and profitably except on a price basis. As a conseauence. the oatmahemid industnr h faat anncoack the Atus of t h i heavy, industrial oh-&& b&&t of large volume, low profit margin commodity type operation. It can certsioly be argued convincingly that such a turn of eventa was bound to oocur m e r or later. The fact remains that a job has been placed quarely on the shouldem Ot chemidepartments to capitabe on the cal industry’s hgreatly increased volume of petrochamioals, at attractive prim, by upgrading into f i b , 6lm.9, p r o h t i ~ * ‘ m t i n g s , plastio~,and other longer profit producta
Thus, the chemicalisation of proteas industries produces aa a primary product new business and outlets for chemicals, and aa a by-product, new competition and problems for chemical industry proper. This then h the unique property of ohemistry-that an acrylonitrile, for example, may be worked up into a plastic, a rubber, a fiber,or a mil conditioner; it a$o d t u t e a a competitive hasad of chemical industry, for a volume u8er of acrylonitrile is tempted to produce, usually not only his own requknenta, but also some for the road. By such t o r t u ~ p ~ e~s ~ e chemicsl a, industry makes p q ma, as it is shear folly to stand still.
Further Prognrr k t i a l l y , chemical industry has made the great& strides in ita history in expaneion over the past decade. In part, E U C ~ expansion waa made poaeible by deferred wartime demand for chemical producta of all kinda; by demands of foreign countries, parti&ly South American countries; by wartime impetus &XI to puttjilkfunda~~entulmi^ into wmmercial practice; and by favorable population and income cbange~ in which the p a t middle classes were broadened and strengthened economicsllv. The industm has d e v e l o d considerable momentum duridg this period, ahd aa a co&uence of rapid expaneion, ita capitalisation became leveraged with addition of @nerous amounts of debt and preferred etock. Much of the debt Ibmcing was accomplished with low interest rata during thin period of idation, and the cat of debt Mphrtitularly small (by compsrison with the caat of eqnity money) profit6 taxes took m large (82%) e pPoportion when exof incrementalincome. Consider how the situation has cbanged. Foreign c o m p 1
INDUSTRIAL A N D ENGINEERING CHEMISTRY
1092
Vol. 46,No. 6
DEBT AND CAPITAL
EATE OF PROFIT ON STOCKHOLDERS' EQUlW
R.)*dhddW(
hkkfeaphlhak.
)mea 011 monufocturing
fmd
corporations
p p t r ond olliad products
rubber products motor vehiiles
rubbsr products
and pa*
24.1
stone, thy ond gloss products ihemitols and olsd poducts
all manufacturing cofpmtions
........................................ U
petrdtum ond id produits 1*.U)1
pper ond allied products
p l h "hh)
ihsmicols md odisd produth
potrdsum od CWI products
stone, cloy and don products
[erneplmllun "hi",)
11.0
1951 1952 1953
0.1
motor vshides ond prts
food
tition has regained many of the markets +ch had been lost to American companies. The U.S. tad7 structure is under 6re and, indeed, there are some small organic chemical concern producing products such as barbiturates, theophylline, aminophylline, and procaine, in unfavorable 6nancial positions. Capital structures of some chemical companies are such as to render earnings of these companies quite wlnerable to declines in businem activity. Considerable expansion in the posbKorea period, induced by certilicatea of necessity and by bigb tax rates, has produced over-capacity in some product lines,particularly petrocbemicals-a situation which under normal conditions of growth may not be wmted until 1957 for such producta as ethylene oxide and glycol, ammonia, acrylonitrile, polyethylene, and others. Doubtless, the formidable amount of momentum generated over the psst decade will carry the industry through a perhaps trying period of the next few years. But we w i l l have to look
-SUMMARY
to the epoxy resins, the isocyanates and other new plastics, some of the synthetic fibers, new pharmaceutical specialties and other new chemicals and proceases for the most satis factory progreas of all-that of growth yielding a eatisfactory return on investment. Financial Operafionr
The investment fraternity still holds the chemical business in high regard. Stocks of leading chemical companies sell on the New York Stock Exchange at prices equal, in a number of cases, to 25 times indicated earning power in 1954. Such a generous pricearnings ratio may be attributed to a bull market in "blue chip" stocks, the excellent record of chemical indnstry earnings growth, and anticipation of continuing growth. Tax reform proposed by the Republican Adminiatration, including liberalization of depreciation dowances
=
Dividends
Sales and Plant Investment
Widend Meld os Per cent of Canlnon Stock Pllcer'
Dollar of Net Sale* per Dollar of Origin01 b s t of Plont and Equipment'
............ ......................
ExhiotivemdYining Petroleum PulpandPsper..
.................
Rnbber... .....................
SJntheticFibsrs.. ................
5.7 4.5 3.7 3.8 9.5
-
AllGroups..................... 4.7 Bued on I&EC.a List of 1W Compenies.
Ob++@
u .hoan m
6.4 4.5
1956 3.4 4.2 4.6 5.0 5.1 5.1 5.5 4.8
4.4
4.3
1951 3.4 4.4 4.3
5.1
5.5 5.1
-
-
1953 3.7 4.4 5.0 4.9 5.6 5.2
Chemical Chemiul R o c e m B.b.ctireand bldininz DmrmdPhurmceubl
5.4
Rubber
-
SJnthetlc Bfbsn
5.1
4.6
by dividin evenga dividend per ahare by average atock price
.YmmUy *%I*,
a
BY CHEMICAL PROCESS INDUSTRY GROUPS
I939 Chemical........................ 4.4 Chsmicalhcsss ................ 4.4 DrtlrmdPh-cauti ul......... 4.0
a
0
pama 1107-08.
Pebilsum ptllpmd Paper
1939
195X
1956
$0.73 1.43
$1.23 2.15 1.92
0.83 1.23
$1.06 2.01 1.72 .... 2.45 0.79 1.14
3.11 0.92
0.75
0.92 ~~~~
4.57 0.42 0.49 1.18 0.55
~~~~
2.83
2.84 ~
~~
1953 $1.04
2.01 1.61 ..-. 2.36 0.77 1.08 2.7s 0.71
0.60 1.19 1.09 1.06
All Groups Bsrsd on I&EC's List of 1W Compsniea. a
ObWned bu dividi
u .horn in summan t%,
net 4-by o
m nmW'
Cyt of p h t and qquipmmt
INDUSTRIAL A N D ENGINEERXNG CHEMISTRY
June 1954
UINIIIQO MSTRIWTED
1093
CURRENT RATIO
1951 1912 1953
1911
1912
(.WW.SSdSQrY.lLIdikLlilkc
I913
r6... ...
motor W~KIES and pacts
6 I 2 91
ptrdmum and CUI pnducts I*"* c*u ns* rubbsr rrducts
food chemicals a d ollied products
stone, cloy and glass products
petroleum ond CWI products (ma#wn*un nfiihil
011 monulrturing corporitbns rubbr products pper ond ollied products
and the exemption from tax ofpart of dividend income, should encourage capital investment. To an appreeisble extent, institutional investors 88 banks, mutual funds, pension funds, and insurance companies have become important buyers of common stocks, particularly the proved, seasoned blue chips. Aa a result, the l d m g equities among the chemical stocks are in considerable demand. An analyek of mutual fund portfolios indicatea that holdinga of chemical stocks (including only the "pure" chemical companies and excluding all other chemical pw&g companies) amount to only 5 to 10% on the average of all common stock holdings. Some funds are well below the lower limit, and a few such as the Chemical Fund a n well above the upper l i t . Holdings of petroleum stocks, however, range from 15% up, while holdings of utility stocks seems to average about 15%. It would Beem by these comparisons
h r s t Hddings Componu MrUonr of Dollorr E. L du Pont de m m o m . ......... $52.8 Union Carbide m d Carbon. ........ 36.5 DowChamical.................... MonunM Chemical..,............ llllicdchemical ................... h a r i u n C y - m i d ...............
IhstmrmKodak.. . . . . . . . . . . . . . . . . Mathieeon Chemical............... Hercules Powder.. ................ Victor Chemieal. .................. Rohm&Haas.. ................... Hooker Elcctmchemical. .......... Spencer Chemioal. ................
24.6 21.1 16.8 16.5 13.0 12.3 11.2
.
6.7 6.6 6.6 4.8
Rate of Return
Depreciation
Net Income 0s D Per cent of Net WeP
Depreciation as (I Per cent of Depndded Value'
1939
1951
20.0 10.8 Chemical 12.7 6.5 Chemical Process 18.1 10.1 Dmg and Phar-ceutical 9.7 Extractive m d Mining 9.5 12.1 8.1 Pekol9.8 Pulp m d FWer 7.0 4.8 4.2 Rubber 12.1 10.6 Spthetic Fibers All Gmupm 10.6 9.8 Bawd on IdrEC's Lid of 1W'Companisa. Obtained b dividing net inaoma by net aslea
-
table.
that chemical companies have not done 80 effective a selling job to stockholder groups as they might. A ranking of chemical stock popularity in terms of dollar value of investment trust holdings, *en from December 31, 1953, records of Aigeltinger Q Co., are summarized as follows:
p.w Ild;-os.
-
1952
1953
9.9 5.9 8.4 9.4 11.2 8.8 4.0 8.5
9.7 5.9 8.3 9.1 11.4 8.0 4.3 7.2
-
9.0 UI d o w n in
9.0
summary
Chem i d . ......................
Chemical Process ............... Dmgnnd Phurmesutical ........ Extractiveand Mining ...........
1939
I951
1952
1953
8.0 7.5 7.7
10.3 7.2 6.9 8.4
10.3 7.9 8.4 8.1 8.2 7.4 13.5 8.1 8.7
12.0 8.6 9.2 7.5 8.3 8.0 17.3 8.6 9.3
6.7
8.5 Pekolevm ...................... 8.0 7.2 P u l p m d P i p e r ................. 5.7 10.4 14.1 Rubber ........................ S p t h e t i c f i b e r s . . .............. 7 . 1 9.7 AUG~mups ................... 8.0 8.8 B w d on I6EC's Liat of IW ComWes. a Obtaiped by d i v i d i y n g e depreciation by wer*ge d u e demecisted M
ihoran m summary ta Is. pama 1107-08.
