News of the Week
FIRST-QUARTER CHEMICAL EARNINGS TUMBLE Chemical company executives must be wondering just how bad things can get. Every three months they hear that the turn in the recession is just around the corner, but that turn, like tomorrow, never seems to come. Thus it seems for the quarter ending last month. The chemical industry was assured last summer that by now the economy would be picking up and the industry would have a spring full of balmy earnings. Instead, companies are being buffeted by results that will make earnings performance in 1981 seem rosy by comparison. For 18 major basic chemical companies that have reported this year's first-quarter financial data so far, results have been abysmal. Combined sales for the 18 companies declined 6.1% to $17.0 billion from the first quarter last year. And combined earnings for the 18 companies plummeted 36.2% to $731 million. These results are considerably worse than in the fourth quarter of 1981. The earnings drop in firstquarter 1982 was half again as great. Sales had risen a bit in the fourth quarter but fell this time. In all, the numbers bear out that the recession
deepened considerably in first-quarter 1982, even if the rate of economic decline eased from the nosedive pitch of the fourth quarter. Behind the bottom-line damage companies are now reporting physical business volume, measured by production indexes, was off about 12% this winter from a year ago. That's trouble all by itself but was magnified by price problems. Many basic chemicals and polymers were discounted up to a third or more from list prices. The pricing disaster was far greater than indicated by official government chemical price indexes, which try to reflect realmarket discounts but never really catch up. Combined with still-increasing energy costs, steadily rising wage costs, and sky-high financing costs, the woeful state of prices and production overcame all efforts at companies to tighten the belt and increase productivity. The result is the uniform profits gloom showing up in first-quarter reports. Of the 18 companies that have reported, only four—Allied, Celanese, Chemed, and Stauffer Chemical—had increases in sales. And as
Only Chemed had earnings> increase in first quarter $ Millions
First-quarter 1982 Salés Earnings3
Change from 1981 Sales
Earnings
Profit margin b 1982
1981
$ 290.5 1614.0 845.5 850.0 59.9 791.1
$-2.7 63.0 38.0 20.0 5.2 29.1
-5.9% 2.0 -4.7 6.7 2.0 -9.3
def -25.0 -20.8 -44.4 4.2 -52.1
def 3.9 4.5 2.4 8.7 3.7
1.1% 5.3 5.4 4.0 8.5 7.0
Dow Chemical Ethyl Corp. B. F. Goodrich W. R. Grace0 Herculesd International Minerals
2781.0 402.7 728.6 1463.2 640.0 419.2
97.0 17.1 -18.4 79.1 21.9 23.5
-4.0 -5.3 -6.6 -1.8 -4.2 -21.6
-46.1 -19.3 def -5.3 -41.8 -44.0
3.5 4.2 def 5.4 3.4 5.6
6.2 5.0 1.2 5.6 5.6 7.9
Monsanto* Pennwalt PPG Industries® Rohm & Haasf Stauffer Chemical Union Carbide
1731.7 246.7 752.2 475.3 630.3 2312.1
147.5 5.3 16.5 16.0 82.1 90.8
-8.9 -7.9 -7.1 -0.7 0.2 -12.4
-16.2 -45.9 -70.2 -41.6 -6.6 49.0
8.5 2.1 2.2 3.4 13.0 3.9
9.3 3.7 6.8 6.6 14.0 6.7
Akzona Allied American Cyanamid Celanese Chemed Diamond Shamrock
a After-tax from continuing operations, excluding extraordinary and nonrecurring items, b Net earnings as a percentage of sales, c Excludes nonrecurring gain of $65.1 million in first-quarter 1982. d Excludes nonrecurring gain of $5.3 million, first-quarter 1981. e Excludes nonrecurring first-quarter 1982 gain of $7.6 million, f Excludes nonrecurring first-quarter 1981 gain of $7.6 million, def = deficit.
4
C&EN April 26, 1982
far as earnings are concerned, thus far, tiny Chemed, spun off from W. R. Grace, shines brightly as the only company with an increase in earnings for the quarter. Chemed's earnings increased 4.2% from first-quarter 1981 to $5.2 million; its sales rose 2.0% to $59.9 million. Two of the 18 companies reported losses for the first quarter. Akzona suffered a loss of $2.7 million compared to a profit of $3.3 million in the first quarter last year. Its sales declined 5.9% to about $291 million. And B. F. Goodrich had an $18.4 million loss, compared to earnings of $9.3 million in first-quarter 1981. The company's sales fell 6.6% to almost $729 million. Apart from these two companies, the greatest earnings drop percentagewise for the quarter occurred at PPG Industries, where earnings fell 70.2% from the year-earlier period to $16.5 million. Its sales were down 7.1% to a little more than $752 million. This is not the greatest sales drop among the 18 companies by far. That distinction is held by International Minerals, whose sales fell 21.6% to about $419 million. IMC's earnings dropped 44.0% to $23.5 million, which was just the seventh largest drop among the 18 companies. Union Carbide had the second largest sales decline, 12.4%, to $2.31 billion. Its earnings drop of 49.0% to $90.8 million is the largest decline in terms of dollars among the 18 companies—down $87.2 million—from year-before levels. As expected, the economy has been blamed for the declines at almost all of the companies. For instance, Monsanto chairman and chief executive officer John W. Hanley says, "Our first-quarter results reflect the continuing recessionary business environment around the world. The quarter opened with a continuation of t h e widespread industrywide inventory liquidation process that began in the latter part of 1981. Although our shipments levels improved somewhat as the quarter progressed, they were still below the year-ago levels. With tight inventory controls in place, our operating rates were some 13 percentage points below those experienced during the first quarter of 1981." D
