BUSI NESS
EARNINGS SURVIVE UNSTABLE RECOVERY
With the price increases, DuPont boosted sales by 19% to $10.3 billion compared with last year’s second quarter. Its $1.3 billion in earnings beat analysts’ expectations, but the successes were spotty, remarked Robert Koort, chemicals analyst at Goldman Sachs. “Unlike beats in prior quarters that were Chemical firms’ SECOND-QUARTER RESULTS broad based, with all segments outpershow signs that demand is stagnating forming, this quarter’s outperformance MELODY M. BOMGARDNER, C&EN NORTHEAST NEWS BUREAU was more due to exceptional results from performance chemicals (titanium dioxide), while several other segments lagged expecTHE U.S. CHEMICAL INDUSTRY enjoyed price increases, often in the double digits, tations,” Koort wrote in a note to investors. another strong quarter in the midst of a but most chemical firms did not report He listed the lagging segments as perforglobal economy that is demonstrating evisignificant sales volume growth during the mance materials, electronics, performance dence of a second slowdown. The 23 firms quarter. “Overall, we had excellent priccoatings, and safety and protection. tracked by C&EN delivered earnings for ing performance driven by innovative new Higher pricing also came out ahead of the second quarter that were 30% higher products and disciplined pricing actions volume increases at Dow Chemical. The than in the same period in 2010. Almost across all businesses. Volume was up 2% company saw earnings jump 61% to just all the companies were able to raise prices for the quarter compared to 9% in the first under $1 billion. Dow was able to raise prices steeply to more than offset increased costs quarter,” reported DuPont Chief Executive 20% in its performance products business for energy and raw materials. Officer Ellen J. Kullman in a conference because of strong demand in the energy, Demand from customers supported the call with analysts. health, nutrition, and oil additives markets. Although all Dow businesses inCHEMICAL INDUSTRY 2011 Second-quarter results: Sales increased 18.9%, earnings jumped 30.0%, creased earnings profit margin grew to 9.8% from 8.9%. compared with last year’s second % change from year-earlier quarter % change from year-earlier quarter After-tax earnings as % of sales quarter, volumes 40 200 10 Earnings Sales Profit margin for coatings and 160 8 infrastructure 20 120 and for perfor6 80 mance systems 0 40 were flat. 4 1.9 Coatings were 0 –20 2 a weak spot as –40 well for Cytec In0 –40 –80 dustries, where 2009 2010 2011 2009 2010 2011 2009 2010 2011 volumes sank 9% compared NOTE: All sales, earnings, and profit margin data are based on the chemical companies listed on page 19. with the same
TOP 10 RANKINGS U.S. chemical industry leaders for the second quarter SALES RANK 2011
1 2 3 4 5 6 7 8 9 10
($ MILLIONS)
Dow Chemical DuPont PPG Industries Huntsman Corp. Mosaic Praxair Air Products Eastman Chemical Celanese Ashland
$16,046 10,264 3,986 2,934 2,860 2,858 2,578 1,885 1,753 1,667
EARNINGS RANK 2010
1 2 3 5 7 4 6 8 9 nl
DuPont Dow Chemical Mosaic Praxair PPG Industries Air Products Celanese Eastman Chemical Lubrizol Huntsman Corp.
PROFITABILITY
($ MILLIONS)
RANK 2010
$1,310 989 649 425 340 318 236 200 192 117
1 2 3 4 6 5 8 9 7 14
NOTE: Based on the companies listed on page 19. nl = not listed.
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EARNINGS AS % OF SALES
Mosaic Sigma-Aldrich Albemarle Praxair FMC Corp. Celanese DuPont Air Products Lubrizol Eastman Chemical
22.7% 17.7 15.4 14.9 13.7 13.5 12.8 12.3 11.7 10.6
RANK 2010
1 2 5 3 8 10 6 7 4 11
CHEMICAL RESULTS Higher prices helped chemical firms raise earnings in the first and second quarters SECOND-QUARTER 2011 SALES EARNINGSa CHANGE FROM 2010 ($ MILLIONS) SALES EARNINGS
PROFIT MARGINb 2011 2010
FIRST-HALF 2011 SALES EARNINGSa CHANGE FROM 2010 ($ MILLIONS) SALES EARNINGS
PROFIT MARGINb 2011 2010
Air Products Albemarle Ashland Cabot Celanese Chemtura
$2,578 742 1,667 883 1,753 876
$318 114 69 68 236 51
14.5% 25.3 12.8 17.3 15.6 14.2
25.7% 39.0 -41.0 11.5 50.3 27.5
12.3% 15.4 4.1 7.7 13.5 5.8
11.2% 13.9 7.9 8.1 10.3 5.2
$4,970 1,439 3,224 1,674 3,342 1,575
$641 221 165 124 382 65
10.4% 22.7 -13.5 14.3 15.0 15.0
17.8% 52.4 def 19.2 24.8 58.5
12.9% 15.4 5.1 7.4 11.4 4.1
12.1% 12.4 8.5 7.1 10.5 3.0
Cytec Industries Dow Chemical DuPont Eastman Chemical Ferro FMC Corp.
798 16,046 10,264 1,885 594 812
46 989 1,310 200 24 111
13.7 17.8 19.1 25.5 9.4 4.5
-14.8 61.1 21.2 39.9 -20.0 15.6
5.8 6.2 12.8 10.6 4.0 13.7
7.7 4.5 12.5 9.5 5.5 12.4
1,564 30,779 20,298 3,643 1,167 1,607
85 1,941 2,754 382 50 218
15.9 13.8 18.7 26.8 12.6 4.8
2.4 75.7 24.2 54.0 def 11.2
5.4 6.3 13.6 10.5 4.3 13.6
6.2 4.1 13.0 8.6 nm 12.8
H.B. Fuller W.R. Grace Huntsman Corp. Lubrizol Mosaic Nalco
394 826 2,934 1,635 2,860 1,176
25 76 117 192 649 58
13.2 20.6 25.2 16.7 53.8 8.2
25.0 49.0 56.0 -5.0 63.9 1.8
6.3 9.2 4.0 11.7 22.7 4.9
5.7 7.4 3.2 14.4 21.3 5.2
733 1,522 5,613 3,154 5,074 2,237
39 130 231 371 1,191 176
11.6 17.1 26.5 16.1 41.3 9.5
2.6 21.5 291.5 1.6 92.1 114.6
5.3 8.5 4.1 11.8 23.5 7.9
5.8 8.2 1.3 13.4 17.3 4.0
PPG Industries Praxair Rockwood Holdings Sigma-Aldrich Stepan
3,986 2,858 1,000 637 477
340 425 94 113 21
15.3 13.1 22.9 15.0 30.0
25.0 14.6 141.0 16.5 10.5
8.5 14.9 9.4 17.7 4.4
7.9 14.7 4.8 17.5 5.2
7,519 5,560 1,914 1,269 900
568 823 164 232 39
14.2 12.2 20.2 12.7 27.8
88.1 20.1 134.3 17.8 2.6
7.6 14.8 8.6 18.3 4.3
4.6 13.8 4.4 17.5 5.4
$56,805
$5,595
18.9%
30.0%
$109,202
$10,927
15.7%
40.0%
9.9%
TOTALc
9.8%
8.9%
8.2%
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.
quarter last year. The company made up the difference with higher prices and the help of favorable exchange rates brought on by the weak dollar. And its engineered materials and process separation businesses did increase sales volumes. But overall, Cytec’s quarter earnings of $46 million were down 15% compared with the year-ago period. THE LACKLUSTER growth in volumes
should not be a surprise, according to the American Chemistry Council, an industry trade group. “Business investment and exports have led the recovery thus far; however, recent indicators suggest that the robust manufacturing recovery has lost momentum,” warned economist T. Kevin Swift in ACC’s midyear outlook report. He predicted that U.S. chemical output will be 4% higher this year than in 2010. PPG Industries’ coatings business suffered a difficult April, when its automobile manufacturing customers were hit with production stoppages due to the March earthquake and tsunami in Japan. In addi-
tion, bad weather hampered architectural painting in the U.S., and one of PPG’s larger customers went bankrupt. But in contrast to the coatings performance of other firms, PPG raised quarterly revenues 15% compared with last year by using May and June to increase sales volumes and prices. Another company that beat the volume blahs was Eastman Chemical, which sold 15% more in its largest segment—performance chemicals and intermediates—than in the second quarter of 2010. It also raised prices by 19%. Eastman reported that its plasticizer and acetyl chemical product lines were in particularly high demand. It said the higher selling prices were in response to higher raw material and energy costs, strengthened demand in the U.S., and tight industrial supply. Overall, Eastman’s sales soared 26% compared with the year-ago quarter, while its earnings rose 40% to $200 million. Albemarle posted gains similar to Eastman’s for the quarter. The company raised sales 25% to $742 million and earnings by WWW.CEN-ONLINE.ORG
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39% to $114 million. Most of the increase was driven by higher prices, but the firm’s catalyst and fine chemistry businesses also saw higher volumes, though Albemarle did not disclose the amount of the increase. Chemtura returned to the C&EN survey with two strong quarters of postbankruptcy results. The refreshed company had earnings of $51 million for the quarter on sales of $876 million. Its largest segment, industrial performance products, saw an increase in demand-driven volume. But sales of its consumer products lines dropped 11% as a result of slowing consumer purchases and cautious inventory management by mass-market retailers. Meanwhile, Ashland was not able to increase prices enough to preserve earnings during the quarter. “Our June quarter results were significantly affected by steep raw material cost increases,” explained CEO James J. O’Brien. “Across our commercial units, raw material costs increased nearly $60 million sequentially—roughly double the average increase in the prior
three quarters.” The company increased sales by 13% but saw earnings plunge 41%. Looking ahead, O’Brien said Ashland’s sales will benefit from its pending $3.2 billion acquisition of International Specialty Products, disclosed in early June. “In particular, it will significantly expand our position in higher-margin, higher-growth end markets such as personal care and pharmaceuticals,” he stated in the company’s earnings announcement. “Greater participation in these stable, less cyclical end markets should help lead to more consistent, predictable earnings and cash-flow generation for Ashland.” Indeed, the wobbly economic recovery did not stop deal-making. Two other acquisitions were announced just prior to second-quarter-earnings releases: Lonza’s $1.4 billion cash offer for microbial control company Arch Chemicals and Ecolab’s $8.1 billion bid for water treatment firm Nalco. Meanwhile, in its earnings report, Lubrizol said that its pending takeover by conglomerate Berkshire Hathaway (C&EN, March 21, page 11) will close within the next few months.
It remains to be seen whether the new chemical company combinations will be stronger in the face of slow growth—or even a possible double-dip recession. The latter is a scenario that ACC’s Swift estimates has a 25% likelihood of happening. “Persistent higher energy prices, the collapse of housing, the supply chain shock emanating from Japan, European debt crisis, U.S. debt issues, uncertainty, and other factors are working against the recovery,” he told reporters on a midyear conference call. “These factors could engender a vicious cycle of financial distress, asset depreciation, and falling incomes, sales, production, and employment.” EVEN IF THE ECONOMY stays out of recessionary territory, recent economic indicators suggest that meaningful growth is elusive. In the second quarter, U.S. gross domestic product grew only 1.3%, after firstquarter growth of 0.4%. Consumer spending was flat, and durable goods purchases fell by more than 4% from the first quarter. Spending on nondurable goods did not increase either.
The Institute for Supply Management’s July report on purchasing by manufacturers was equally dismal. Although overall manufacturing activity expanded, the rate of growth slowed, and the index of new orders showed contraction for the first time since June 2009. The chemical products sector was one of seven industries reporting contraction in July. Regardless of the end market or state of the economy, chemical firms will be primarily looking overseas for growth during the remainder of 2011 and beyond. Chemtura, for example, is investing in a multipurpose manufacturing facility in Nantong, China, which CEO Craig A. Rogerson says will help improve profits. And even if the global economy does not catch fire, the weakened dollar makes for a strong export market. In his comments to investors, Rogerson acknowledged that demand in the short term is not ensured. “While we are closely monitoring our customers for indications of slower macroeconomic demand, we remain optimistic about our prospects for the second half of the year and our ability to deliver continued year-on-year improvement.” ◾
A new Virtual Special Issue from
Plasmon Resonances — A Physical Chemistry Perspective “This Virtual Issue brings together a few representative papers published in the Journal of Physical Chemistry A/B/C and the Journal of Physical Chemistry Letters in recent years on Plasmonics. The articles cover the areas of the synthesis and spectroscopy of metal nanostructures, theory and modeling of plasmonic structures, and the more applied topics of surface enhanced spectroscopies and bio-medical applications. These articles represent contributions from scientists around the world, who are actively involved in this dynamic and diverse field of surface plasmon research.” — From the Editorial by Senior Editor Gregory V. Hartland, University of Notre Dame, and Editor-in-Chief George C. Schatz, Northwestern University
pubs.acs.org/JPCC
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