NEWS OF THE W EEK
WARY CUSTOMERS DAMPEN EARNINGS FOURTH QUARTER: Chemical firms blame inventory destocking for poor finish in 2011
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HE EUROPEAN debt crisis and cash-conserving
buyers added to seasonal slowness that hurt U.S. chemical earnings in the fourth quarter of 2011. At Dow, earnings declined 46% compared with 2010’s fourth quarter. In a conference call, CEO Andrew N. Liveris reminded analysts that the company had anticipated destocking by customers and spent the fourth quarter cutting discretionary spending and tightening operating rates. The quarter brought lower sales volumes for electronic materials and coatings; performance materials volumes were flat. Dow’s earnings were lower than expected, Charles Neivert, managing director at investment bank Dahlman Rose, wrote in a note to investors, but the shortfall was due to overall economic deterioration and outside the control of management. “This should not be a significant surprise to the market, as we have observed this from others in the chemical space,” he added. At DuPont, sales volumes for electronic materials declined 33% compared with the year-ago quarter. CEO Ellen J. Kullman told analysts in a conference call that oversupply in photovoltaics continued to push down sales. She pointed out that the solar market is responsible for 40% of the company’s electronics sales. Sales of performance chemicals and performance coatings each declined 13%. In total, DuPont’s earnings dropped 30% year-over-year to $325 million. On the positive side, Dow and DuPont both succeeded in raising prices enough to more than offset increasing raw material and energy costs and to push
overall sales higher than in 2010’s fourth quarter. Emerging countries accounted for 35% of Dow’s sales; Liveris said strong volumes in these markets offset weakness in places such as Western Europe. In addition, good demand in Latin America helped Dow and DuPont each sell $1.3 billion worth of agricultural products in the quarter. Meanwhile, a major acquisition made the difference at Ashland in the quarter. The integration of ISP contributed $450 million in sales and pushed earnings up 32% over fourth-quarter 2010. “The addition of ISP has significantly expanded our positions in higher-margin
FOURTH-QUARTER CHEMICAL RESULTS Inventory destocking weighs on chemical earnings SALES EARNINGSa ($ MILLIONS)
Air Products Albemarle Ashland Celanese Cytec Industries Dow Chemical DuPont Eastman Chemical Mosaic PPG Industries Praxair
$2,423 707 1,930 1,614 731 14,097
$292 99 95 96 40 289
8,425 1,723 3,015 3,517 2,796
325 100 624 216 414
CHANGE FROM 2010 SALES EARNINGS
PROFIT MARGINb 2011 2010
1.3% 16.9 34.7 7.1 4.4 2.4
-1.4% 16.5 31.9 -6.8 16.5 -46.3
12.1% 14.0 4.9 5.9 5.5 2.1
12.4% 14.0 5.0 6.8 4.9 3.9
13.8 17.8 12.7 16.9 6.6
-29.8 -3.8 36.5 5.4 6.7
3.9 5.8 20.7 6.1 14.8
6.3 7.1 17.1 6.1 14.8
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales.
growth markets such as personal care and pharmaceuticals,” Ashland CEO James J. O’Brien told investors. Chemical company CEOs share an outlook for 2012: They anticipate continued weakness in the first quarter but forecast a turnaround sometime thereafter. “At this point,” Kullman said, “many of our supply chain inventories are low, and we expect demand to pick up slowly, starting late in the first quarter or early in the second quarter.”—MELODY BOMGARDNER
PHARMACEUTICALS AstraZeneca unveils next round of job cuts Acknowledging significant challenges to its drug portfolio, AstraZeneca says it will shed 7,300 jobs, over 10% of its workforce, including some 2,200 R&D positions. The layoffs are expected to generate $1.6 billion in savings by 2014. The British-Swedish drug firm is cutting to the core to try to offset the impact of generics competition for several key products. The psychosis drug Seroquel IR, which had $4.3 billion in sales in 2011, is slated to lose patent protection in the U.S. in March. The blood pressure pill Atacand is expected to face generics
competition in several markets, and the cholesterol medicine Crestor will lose patent protection in Canada. AstraZeneca says its neuroscience research activities will see the most change. The company is shuttering its R&D site in Montreal and ending R&D activity in Södertälje, Sweden. Instead, a virtual neuroscience unit comprising 40 to 50 AstraZeneca scientists will work outside of the company’s labs, partnering with academic and industry scientists to conduct drug discovery and development. AstraZeneca is the latest among the
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big pharma firms to step away from internal neuroscience research, which has produced few new drugs despite major investments. Novartis recently said it would close its neuroscience facility in Basel, Switzerland, and two years ago GlaxoSmithKline decided to forgo research in areas such as depression and pain. The fresh round of cuts is on top of the 8,000 jobs, including some 3,500 in R&D, that AstraZeneca said in 2010 it would cut over four years. That move followed the elimination of 15,000 jobs between 2007 and 2009.—LISA JARVIS
