Business
Earnings gain off, but better than expected Increase in chemical earnings slipped to 2 1 % in fourth quarter after four quarters of larger gains; full-year earnings spurted 29% William J. Storck and William F. Fallwell C&EN, New York
The fourth quarter of 1979 turned out much better for chemical companies than many in the industry thought it would. Earlier predictions by analysts had put earnings gains from fourthquarter 1978 at anywhere from flat to 10%. In fact, the increase for 35 of the top 40 U.S. chemical companies averaged 21% for earnings and 23% for sales. The earnings gain for the chemical
companies proves the cliché, "It depends upon your point of view." As recently as a year and a half ago, a 21% gain in earnings performance would have been viewed as very good news. Then in the fourth quarter of 1978, chemical earnings took off. They increased an average of 36% in the fourth quarter of 1978, and in the first three quarters of 1979 they increased 36%, 34%, and 30%. So now, the 21% gain in the fourth quarter must be viewed as bad news, representing a considerable slowing in the chemical economy. For the full.year, the news was good. As C&EN predicted earlier (C&EN, Nov. 12,1979, page 10), sales for the industry for all of 1979 increased 22%. Earnings rose 29%, one percentage point higher than C&EN forecast. The greater increase in earnings over sales raised chemical profit margins from an average of 6.0% in 1978 to 6.6% in 1979. This is the highest full-year profit margin since 1976, when it was 6.7%.
Chemical industry leaders for fourth-quarter 1979 . . . Sales Rank
1 2 3 4 5 6 7 8 9 10
Earnings
Profitability Earnings as % of sales
$ Millions 3
$ Millions
Du Pont $3176.5 Du Pont Dow Chemical 2447.3 Dow Chemical Union Carbide 2396.0 Union Carbide Monsanto 1547.9 Allied Chemical W.R.Grace 1471.9 W. R. Grace Allied Chemical 1298.3 Diamond Shamrock American Cyanamid 857.0 American Cyanamid Celanese 814.0 Texasgulf Diamond Shamrock 666.1 International Minerals Hercules 596.0 Stauffer Chemical
$206.1 143.6 131.9 67.4 63.9 58.5 45.5 44.2 37.8 35.9
20.0% Freeport Minerals 20.0 Texasgulf nternational Flavors 13.5 Big Three Industries 12.6 11.1 Nalco Chemical 9.7 Stauffer Chemical 9.0 First Mississippi 9.0 Petroiite Diamond Shamrock 8.8 | Air Products 8.6
|
. . . and for full-year 1979 Sales Rank
1 2 3 4 5 6 7 8 9 10
Du Pont Dow Chemical Union Carbide Monsanto W. R. Grace Allied Chemical American Cyanamid Celanese Diamond Shamrock Hercules
Profitability
Earnings $ Millions 3
$ Millions
$12,571.8 9,255.4 9,176.2 6,195.2 5,266.6 4,332.4 3,187.0 3,146.0 2,351.6 2,350.0
Du Pont Dow Chemical Union Carbide Monsanto W. R. Grace Diamond Shamrock Allied Chemical American Cyanamid Hercules Celanese
$938.9 733.2 556.4 338.4 222.6 178.1 175.6 168.5 144.5 143.0
Earnings as % of sales
20.8% Freeport Minerals 17.3 Texasgulf International Flavors 15.0 Big Three Industries 12.3 11.1 Nalco Chemical 8.9 Stauffer Chemical International Minerals 8.5 8.3 Petroiite 8.1 Air Products 7.9 I Dow Chemical
a After taxes. Note: For basic chemical companies with half or more of their sales in chemicals.
8
C&EN Feb. 18, 1980
|
I
However, as it was in the third quarter, the average profit margin is being held up by the smaller, less diversified companies, such as Freeport Minerals, Texasgulf, Nalco Chemical, and Big Three Industries. In general, fourth-quarter earnings held up fairly well. But they were affected considerably by some big nonrecurring items at some of the larger companies. For instance, Dow Chemical had a nonrecurring gain of 28 cents a share. The elimination of this gain lowered the company's earnings increase for the fourth quarter from 41% to 4%. However, there was a definite weakness in some parts of the chemical companies' markets in the fourth quarter. Most notable among the weak markets was fibers, dragging down earnings and profit margins at some companies. At Du Pont, fibers sales were almost $1.1 billion, a 21% increase in the fourth quarter over the same period in 1978. But income from fibers fell 16.5% to $69.2 million. At Allied Chemical, operating profits from its fibers and plastics division fell 16% from a year ago. Fibers earnings at Celanese dropped 57% from a year ago, and the company lost 12 cents a share on U.S. polyester and nylon. In fact, cellulosics were the only fibers to show an increase at Celanese; they were up 45%. And at Akzona, net after-tax operating income at its American Enka operation decreased 18% to $5.3 million in the fourth quarter. However, probably the worst case was at Monsanto, where the company had a net loss in its fibers operations of $44.7 million, compared to a loss of $19.8 million in fourth-quarter 1978. In all of 1979, Monsanto lost more than $168 million in its textile operations. In 1978, these same operations lost $29.2 million. And that was not all of the bad news at Monsanto. The firm's plastics and resins operations also showed a big loss in the fourth quarter—in this case $28.2 million. In fourth-quarter 1978 the same business had a modest loss of $500,000. As they have been all year, chemical companies were complaining about raw material costs in 1979's last three months. Du Pont attributes its 6% decline in earnings primarily to
Chemical Industry 1979 Final Results
•Sales continued big gains • Earnings increase slowed • Profit margins fell again
Sales
Earnings
% change from year-earlier quarter 25
% change from year-earlier quarter
"RHP!
|
20
30 Ι
15 20
• Production increased 4.1% 10
• Prices shot up 16.6%
10
0
0t
1979
1978
1979
1978
Profit margins
Production
Prices
After-tax earnings as % of sales 7
% change from year-earlier quarter
% change from year-earlier quarter
ιυ
16 8
14 12
6 6
10 8
4 5
6 4
2
2 0
0 1978
1979
0 1978
1979
1978
1979
For the full year, sales increased 22% to top $83 billion, while earnings increased 28% to almost $5.3 billion; profit margins increased to 6.4% Annual sales
Annual earnings
Annual profit margins
$ Billions 100
$ Billions
Per cent
ο
'Mmm
5
80
7 4 60 6
3 40 2
5 20
1
0 1969
71
73
75
77
79 e
Ω 1969
0 71
73
75
77
79
1969
71
73
75
77
79
a C&EN estimates. Note: All sales, earnings, and profit margin data are based on the combined performance of the 40 largest basic chemical makers listed on page 10.
Feb. 18, 1980 C&EN
9
Fourth-quarter earnings increased 21 % for chemical firms; profit margins off slightly Sales
FOURTH-QUARTER 1979 Earnings Change from 1978
($ millions)
Du Pont Dow Chemical Union Carbide Monsanto W. R. Grace
$3,176.5 2,447.3 2,396.0 1,547.9 1,471.9
$206.1 143.6 131.9 18.2 63.9
Allied Chemical American Cyanamidd Celanese Diamond Shamrockd Hercules
1,298.3 857.0 814.0 666.1 596.0
National Distillers Williams Cos. International Minerals Olin Ethyl
1979
1978
19% 27 51 12 30
175.6 168.5 143.0 178.1 144.5
44 15 21 29 21
15 8 28 28 40
2,114.9 1,850.0 1,642.5 1,800.0 1,657.0
117.3 69.5 140.0 71.1 97.5
14 24 17 13 16
10 151 24 13 13
4.2 10.4 6.8 8.9 4.5
1,590.5 1,526.2 1,241.0 1,271.7 1,079.3
95.5 136.0 81.9 102.9 48.0
27 15 54 18 17
65 8 53 24 7
2.4 4.6 1.5 8.8 11.7
1,012.4 966.8 874.9 789.3
25.6 42.8 13.4 136.9
17 29 16 31
23 28 -8 173
$938.9 733.2 556.4 338.4 222.6
5.0 5.9 5.1 9.7 4.9
4,332.4 3,187.0 3,146.0 2,351.6 2,350.0
5.8 5.1 8.5 3.5 5.1
5.8 e 8.0 3.6 5.4
39 6 71 12 13
4.7 9.7 7.8 8.6 4.2
25 -1 -11 195
2.5 3.6 1.1 20.0
6.5% 5.9 5.5 1.2 4.3
8.2% 7.6 4.9 3.4 3.1
67.4 45.5 29.0 58.5 26.8
67 16 18 40 18
72 4 -17 27 8
5.2 5.3 3.6 8.8 4.5
558.7 460.1 443.5 441.0 431.1
32.6 23.4 37.8 15.5 22.0
6 35 28 8 14
6 e 35 5 8
Rohm & Haas Stauffer Chemical Cabotf Air Products Pennwalt
387.8 369.7 354.2 317.4 283.3
18.2 35.9 27.5 27.3 11.9
26 14 50 15 22
Akzona Wrtco Chemical Reichhold Chemicals Texasgulf LubrizolQ
275.6 261.1 222.4 220.3
6.9 9.5 2.5 44.2
23 24 18 29
— —
— —
20 18 16 59
10 177
11.1 5.5 12.6 20.0
98.7 92.1
6.3 12.4
32 7
117 2
6.4 13.5
— 51.1 48.0
—
Total 20 largest companies' Total 15 other companies'1 GRAND TOTALh
—
17.7 8.7 17.1 26.0
61.4 60.8
1
—
158.5 157.1 136.0 130.3
—
Beker Industries9 Petrolite Royster Stepan Chemical9 Virginia Chemicals
— —
— 5.5 2.5
— 4.6 2.2
—
32.5
-0.1
$19,317.0 $2,005.9 $21,322.9
$1073.0 $166.0 $1239.0
— 44 5
— 15 56
— 19 23.0% 23.6% 23.2%
17
—
— e 14
— 5 e
— 9.0 4.1
— 9.0 4.6
—
—
e
e
16.1% 61.0% 20.6%
5.6% 8.3% 5.8%
Change from 1978 Earnings Sales
19% 34 17 23 18
$12,571.8 9,255.4 9,176.2 6,195.2 5,266.6
-6% 4 28 ~59 66
Liquid Air International Flavors Mallinckrodts First Mississippi Crompton & Knowles
4.2 11.4 6.6 13.2 11.5 3.9 14.1 8.8 e 3.8
— —
— —
578.9 592.9 509.6 487.7
64.5 30.9 62.8 101.4
22 20 19 60
20 12 11 224
369.1 409.3
24.7 61.5
21 12
35 9
— 237.4 239.6
—
e 9.9 e 3.4 3.1
186.9 268.4
—
5.9% 6.4% 5.9%
— 14.8 7.1
— 15.6 7.6
—
131.3
4.2
$73,605.3 $7,648.5 $81,253.8
$4558.9 $613.8 $5172.7
— —
— 51 10
— 12 43
— 19 22.4% 21.6% 22.3%
— —
— 2,860 16
— 2 347
— 6 25.7% 58.9% 28.9%
a After-tax income as percentage of net sales, b Fully diluted before nonrecurring items and extraordinary charges for continuing operations, c As of Jan. 31. d Includes nonrecurring items. e Deficit, f 1979 results include acquisitions not included in 1978. g Not all data available at press time h Averages except for sales and earnings.
what it calls sharp increases in prices of raw materials and energy. Du Pont says that prices paid for hydrocarbons, which include petrochemical feedstocks, increased 63% in the fourth quarter over the same period of 1978. And silver prices doubled, which had a great impact on the company's photographic products, which use large amounts of silver for x-ray, graphic arts, and industrial films. In all, Du Pont's index for all of its purchased materials increased 38% from the fourth quarter of 1978. At 10
Earnings
Earnings Sales ($ millions)
11% 35 15 19 20
ThiokolQ Nalco Chemical Ferro Big Three Industries Freeport Minerals
1 I
Sales
FULL-YEAR 1979 Profit margin 8
C&ENFeb. 18, 1980
the same time its selling price index for the total company rose only 11%. At Hercules, Alexander F. Giacco, president and chief executive officer, says that for the year as a whole, raw material costs were up 15.7% and energy costs were up 20.9%. He adds, "Should this trend continue into 1980, our success will depend on our ability to increase our prices to recover the higher costs, and our plans have been made accordingly." At Rohm & Haas, feedstock costs
in the fourth quarter increased 27% over the year before, but selling prices were up only 12%. And at Reichhold Chemical, president Peter J. Fass says that "operating margins were narrowed, primarily from continued rapid escalation in petrochemically derived raw materials, which increased in price more rapidly than product sales prices. Operating costs with high energy content continued their sharp increases, reflecting international crude oil and hydrocarbon price escalations."
STOCK MARKET DATA FULL-Y EAR 1979 Profit margin 3 "1979 Ï978~
Earnings per share b
Stock price 0
Dr^A.aarninne
4th qtr
Recent 12 months
Jan. 31
$1.41 0.80 1.99 0.50 1.37
$6.42 4.05 8.47 9.23 4.79
$40% 3478 43% 5674 41%
$457/8 35% 47% 62% 43%
$ 7 24% 35 45 25%
Recent 12 months High Low
7.5% 7.9 6.1 5.5 4.2
7.4% 8.4 4.7 6.0 3.8
4.1 5.3 4.5 7.6 6.1
5.1 5.6 4.3 7.7 5.3
2.20 0.95 1.94 1.10 0.60
5.95 3.52 9.46 3.37 3.27
5672 32 4872 33% 2272
57% 361/8 50 351/2 24%
2872 24% 39% 197e 16%
5.5 3.8 8.5 4.0 5.9
5.7 1.9 8.1 3.9 5.8
0.96 0.86 2.08 0.64 1.07
3.41 2.55 7.15 2.97 4.77
3074 3672 54 1774 29%
321/2 38%
6.0 8.9 6.4 8.4 4.4
4.4 9.5 6.6 7.5 4.5
1.40 0.81 2.65 0.96 1.20
7.39 3.10 7.91 3.63 4.81
2.5 4.4 1.5 17.3
2.4 4.5 1.9 8.3 13.0
— — 11.1 5.2 12.3 20.8 6.7 15.0
— 6.2 3.0
—
4.6 11.3 5.6 13.2 10.3 6.0 15.4 7.9 0.3 2.8
3.2
e 9.2 0.9 3.8 3.6
6.2% 8.0% 6.4%
6.0% 6.1% 6.0%
8.3 2.8
—
0.57
2.10
—
—
0.26 1.18
1.43 3.71
— —
— —
0.83 1.14 0.85 1.24
3.18 4.07 3.13 4.84
0.58 0.34
2.49 1.68
—
—
0.64 1.08
1.73 3.05
—
—
0.78 0.31
2.64 0.43
— -0.2
— 1.62
And Dow Chemical happily reflects that although increased sales were fueled largely by price increases made necessary by huge jumps in energy and hydrocarbon costs, gains were made in real terms. G. J. Williams, financial vice president at Dow, says that in terms of physical volume, sales rose 10%. This increased volume, he says, was reflected in Dow's operating rate, which rose from 79% of capacity in 1978 to 84% for full-year 1979. A weakness in certain parts of the economy—notably housing con-
ratio Jan. 31
6.3% 8.4 5.2 6.1 8.7
Annual indicated dividend
Dividend yield, % of price
$2.75 1.60
6.7% 4.7
3.00 3.40 2.05
6.9 6.0 4.9
9.5 9.1 5.1 9.9 6.9
2.00 1.60 3.20 1.60 1.10
3.5 5.0 6.6 4.8 4.9
25 30%
19% 17 38% 167s 2274
8.9 14.3 7.6 5.8 6.2
2.00 1.10 3.00 1.00 1.50
6.6 3.0 5.6 5.8 5.1
4274 187/8 6178 3872 33%
48% 25 62 421/8 35%
33 17% 34 25 3074
5.7 6.1 7.7 10.6 7.0
2.00 1.10 1.60 0.80 2.20
4.7 5.8 2.6 2.1 6.5
141/8 2974 1378 4778 627/8
17% 33 16%
6.7
64%
11% 20% 111/e 217s 41
9.2 12.7 14.4
0.80 1.40 0.74 1.20 1.80
5.7 4.8 5.6 2.5 2.9
56 3272 22% 46% 62%
58 35% 27% 47% 66%
3072 27% 19 31% 30
9.8 10.2 5.6 10.1 13.0
1.55 1.60 1.20 0.88 1.50
2.8 4.9 5.3 1.9 2.4
24% 19% 2972 31% 18%
28% 24% 33% 33 18%
2372 1874 26% 12 14
9.9 11-8 9.0 18.3 6.2
1.40 0.80 1.20 0.40 1.20
5.7 4.1 4.1 1.3 6.4
13% 4572 15% 2172 1472
16 52% 161/4 23% 12%
4% 3574 4% 1672 1572
17.2 35.8 7.8 9.0
1.08 0.40 0.92 0.70
eiy 2
soy 4
struction and automobiles—is having a negative effect on chemical earnings. H. Barclay Morley, chairman and president of Stauffer Chemical, says that fourth-quarter volume in those areas reflects general economic conditions such as the automotive and housing markets, but that many of Stauffer's specialized products are continuing to show strength into 1980. John W. Hanley, chairman and president of Monsanto, says, "During the fourth quarter, inventory corrections by customers resulted in a sig-
—
|
— 2.4 2.6 4.3 4.8
nificant drop in shipments and a modest buildup in inventory in our own plants. Products for the automotive and residential construction industries in the U.S. were particularly hard hit." And American Cyanamid says that the downturn in construction adversely affected its earnings. One of the bright spots for earnings in the fourth quarter remained agricultural chemicals. Cyanamid's chairman and chief executive officer James G. Affleck says that the comFeb. 18, 1980 C&EN
11
Profit margins still rise for oil firms but drop for other diversified companies FULL-YEAR 197Î
4TH-QUARTER 1979 % Chemical sales
OIL AND GAS COMPANIES Exxonb Mobil" Texaco Standard Oil of California Gulf Oil
8% 3 2 4 9
Sales Earnings ($ millions)
$25,295.0 14,490.0 12,013.0 9,800.0 7,727.0
$1,365.0 541.0 533.9 524.0 366.0
Change from 1978 Earnings Sales
3
Profit margin 1979 1978"
Sales Earnings ($ millions)
39% 36 45 44 42
60% 72 63 66 54
5.4% 3.7 4.4 5.3 4.7
4.7% $84,350.0 2.9 47,946.0 4.0 39,096.0 4.6 31,800.0 4.4 26,137.0
$4,295.0 2,010.0 1,759.1 1,785.0 1,322.0
) Change from 1978 Sales
30% 28 34 29 30
Standard Oil (Ind.) Atlantic Richfield Shell Oil Conoco Tenneco
12 9 18 6 9
6,069.9 5,049.6 4,301.3 3,800.0 3,269.0
368.7 383.0 331.2 190.7 164.0
41 54 47 34 33
70 72 72 23 25
6.1 7.6 7.7 5.0 5.0
5.0 6.8 6.6 5.5 5.3
20,215.3 16,676.7 14,546.2 13,100.0 11,209.0
1,506.6 1,205.9 1,125.6 815.4 571.0
24 31 31 33 28
Sun Co. Phillips Petroleum Standard Oil (Ohio) Union Oilc Ashland Oilc
3 16 6 11 15
3,200.0 3,044.8 2,349.7 2,213.4 1,928.3
222.9 306.5 451.0 152.3 59.4
52 38 53 32 36
107 180 174 23 15
7.0 10.1 19.2 6.9 3.1
5.1 5.0 10.7 7.4 3.6
10,800.0 9,744.8 7,916.0 7,700.0 7,155.8
699.9 891.1 1,186.1 500.6 195.1
42 31 52 26 29
Cities Service El Paso Northern Natural Gas Kerr-McGee American Petrofina
9 10 13 18 14
1,804.2 906.0 775.7 755.5 492.9
106.2 27.6 62.1 40.4 17.7
47 56 44 39 50
96 -25 44 1 -13
5.9 3.0 8.0 5.3 3.6
4.4 6.3 8.0 7.4 6.2
6,276.7 3,088.6 2,499.2 2,683.5 1,622.6
347.5 138.1 191.8 160.0 83.2
35 52 30 29 38
General Electric U.S. Steelb Procter & Gamble Eastman Kodak Esmarkb
2 7 3 20 8
6,130.0 3,000.0 2,622.3 2,587.1 1,827.6
382.0 -561.7 146.7 294.7 26.1
14 0 17 12 11
5 d 15 -11 12
6.2 d 5.6 11.4 1.4
6.7 3.2 5.7 14.3 1.4
22,460.0 12,900.0 10,080.6 8,028.2 6,771.9
1,410.0 -293.0 615.7 1,000.8 92.4
14 17 15 14 15
Firestone Tire & Rubber Georgia-Pacific 3M Aluminum Co. of America Borden
9 8 15 5 33
1,419.0 1,371.0 1,367.0 1,240.0 1,146.1
25.1 70.0 167.2 124.4 29.3
4 16 15 9 15
24 -7 14 24 -11
1.8 5.1 12.2 10.0 2.6
1.5 6.4 12.4 8.8 3.3
5,284.4 5,207.0 5,440.0 4,800.0 4,312.5
102.9 327.0 655.2 493.9 134.0
8 18 17 17 13
FMC PPG Industries B. F. Goodrich Pfizer Borg-Warner
35 32 36 15 20
884.6 800.7 775.3 743.8 716.1
40.0 45.1 14.8 58.6 42.0
7 9 14 14 16
7 -9 -27 4 10
4.5 5.6 1.9 7.9 5.9
4.5 6.7 3.0 8.6 6.2
3,307.5 3,100.0 2,988.2 2,746.0 2,717.4
151.6 208.9 82.6 237.9 155.6
8 11 15 14 17
Kaiser Aluminum Northwest Industries Merck General Tire & Rubber Martin Marietta
14 11 16 10 12
713.7 691.4 629.6 619.2 569.4
63.8 48.5 81.7 15.6 37.3
12 16 19 -2 12
87 18 14 -48 2
8.9 7.0 13.0 2.5 6.6
5.4 6.9 13.6 4.8 7.2
2,926.5 2,579.9 2,384.6 2,294.9 2,060.8
232.2 172.2 381.8 81.7 178.0
20 9 20 4 17
Eli Lilly Koppers NL Industries SCM GAF
21 31 30 13 23
541.4 508.9 476.4 472.6 324.9
70.5 22.0 36.5 11.8 7.6
14 14 16 10 18
9 22 37 30 -14
13.0 4.7 7.7 2.5 2.3
13.6 4.3 6.5 2.1 3.2
2,205.8 1,828.3 1,810.2 1,903.8 1,213.2
329.5 86.5 114.6 50.3 28.2
19 16 18 17 14
DIVERSIFIED MANUFACTURERS
a After-tax income as percentage of sales, b Earnings include nonrecurring items, c Sales exclude excise taxes, d Deficit. Note: Earnings are given before major nonrecurring and extraordinary items. Earnings at companies with major operational reshuffles are given for continuing operations. Earnings per share are fully diluted.
12
C&ENFeb. 18, 1980
FULL-YEAR 1979 Change from 1978 Earnings
Earnings per share
STOCK MARKET DATA Stock price Recent 12 Months High Low
Price-earnings ratio Jan. 31
Annual indicated dividend
Dividend yield, % of price
$48% 36% 23% 44% 23
6 6 5 6 6
$4.40 3.00 2.40 3.20 2.25
7.2% 5.1 6.9 5.1 5.7
89% 971/4 697, 55% 43%
53% 57% 3074 28% 2974
9 10 9 7 8
3.60 3.40 2.40 1.90 2.40
4.1 3.6 3.7 3.6 5.6
81 541/4 100 53% 41%
81 55% 102% 54% 45%
42 30% 44% 33 32%
7 9 10 9 7
3.00 1.80 2.00 1.30 2.20
3.7 3.3 2.0 2.4 5.3
12.54 2.99 8.45 6.18 7.77
99 27% 551/4 74% 40%
99 28% 58% 76% 44%
53% 16% 35% 46 24%
8 9 7 12 5
3.60 1.48 3.00 1.55 2.50
3.6 5.4 5.4 2.1 6.1
1.69 -6.50 1.77 1.82 1.24
6.20 -3.41 7.45 6.20 4.40
55 19% 72% 48V4 28%
5674 26% 86% 667/e 32
45 16% 70% 44 23%
9 d 10 8 6
2.80 1.60 3.40 2.40 1.84
5.1 8.1 4.7 5.0 6.5
1.5 6.9 12.1 7.6 3.6
0.43 0.65 1.43 3.51 0.91
1.78 3.03 5.59 13.99 4.12
8% 28% 49% 631/2 23%
13% 31% 64 64% 27%
8% 23% 46% 48% 237,
5 9 9 5 6
0.60 1.20 2.40 3.20 1.82
7.0 4.2 4.8 5.0 7.8
4.6 6.7 2.8 8.7 5.7
4.8 6.5 2.7 8.7 5.8
1.11 1.38 0.87 0.80 1.95
4.18 6.47 4.89 3.26 7.25
29V 2
33 1 / 4 20 1 / 4 37% 35%
31% 34 1 / 4 24 41% 37%
22% 25% 17% 29 26%
7 5 4 12 5
1.40 2.00 1.44 1.32 2.30
4.7 6.0 7.1 3.5 6.5
60 14 24 -29 31
7.9 6.7 16.0 3.6 8.6
5.9 6.4 15.5 5.3 7.7
1.45 1.58 1.08 0.66 1.50
5.28 5.60 5.06 3.44 7.10
23 35 1 / 2 68 1 / 2 17% 54
23% 37% 75% 26% 56%
17% 25% 62% 18 30%
4 6 14 5 8
1.20 2.05 2.30 1.50 2.12
5.2 5.8 3.4 8.6 3.9
19 28 31 26 -7
14.9 4.3 6.3 2.6 2.3
15.0 4.0 5.7 2.4 2.9
0.97 0.83 1.08 1.15 0.44
4.52 3.27 3.36 4.80 1.62
57 27% 38% 22% 10%
63 7 / 8 28% 39% 32 13
47% 17% 20% 16% 9%
13 8 11 5 7
2.10 1.40 1.20 1.30 0.68
3.7 5.1 3.1 5.7 6.4
3
Profit margin 1979 1978
4th qtr
Recent 12 months
5.1% 4.2 4.5 5.6 5.1
4.3% 3.0 2.9 4.4 3.9
$3.10 2.55 1.97 3.06 1.88
$9.74 9.48 6.48 10.44 6.78
$ 607/8 58% 347/8 621/4 391/4
$6iy 4 60% 37% 62% 40%
40 50 40 81 26
7.5 7.2 7.7 6.2 5.1
6.6 6.3 7.3 4.6 5.2
2.45 3.11 2.15 1.77 1.49
10.23 9.81 7.32 7.58 5.16
87% 95 64% 53% 42%
69 63 163 31 13
6.5 9.1 15.0 6.5 2.7
5.5 7.4 8.7 6.3 3.1
3.55 1.98 3.71 1.76 1.89
11.15 5.77 9.83 5.76 5.69
72 27 35 35 157
5.5 4.5 7.7 6.0 5.1
4.3 5.3 7.4 5.7 2.8
3.83 0.59 2.75 1.56 1.65
15 d 13 11 15
6.3 d 6.1 12.5 1.4
6.3 2.2 6.2 12.9 1.4
43 8 16 58 -1
2.0 6.3 12.0 10.3 3.1
14 15 18 13 16
55% 78 106 64 68
Jan. 31
Feb. 18, 1980 C&EN
I I
13
Oil companies' chemical earnings generally improved in 1979 Outside the basic U.S. chemical industry, the industry with the biggest stake in chemicals is petroleum. Centered in building-block petrochemicals, the chemical operations of oil and natural gas companies tend to be more cyclical than operations in the basic chemical industry. Over the past decade, petrochemicals were slow to feel the financial benefits of a business expansion, jumped suddenly in the last year or two of the expansion, and sank sharply at the beginning of the next expansion. Profits have tended to be a little or a lot. In 1979, chemical profits were a lot for many oil and natural gas companies, especially the ones most dependent on
petrochemicals. With high use of plant capacity, petrochemical producers were able both to pass along sharply increased raw materials and energy costs and to strengthen previously slim profit margins. As with basic chemical companies, U.S. exports and non-U.S. operations gave a major profits boost. For example, Exxon, by far the biggest chemical power among oil companies, reports that its chemical earnings climbed 6 8 % m 1979 from 1978 to reach $450 million. U.S. chemical earnings increased 3 0 % , and non-U.S. chemical earnings more than doubled. Exxon chairman C. C. Garvin Jr. Full year
Fourth quarter $ Millions, operational earnings
1979
Atlantic Richfield Cities Service Exxon Gulf Oil Mobil Standard Oil (Ind.) Texaco
$~29 a -3 130 79 18 55 30
%
1978
% Change
1979
1978
Change
$29 1 79 29 31 -4 17
b b 65 172 -41 b 72
$117a -1 450 275 113a 202 97
$91 16 268 81 86 46 55
29% b 68 240 31 344 77
a Earningstoweredsignificantly by nonrecurring item, h Deficit in either 1979 cr 1978.
pany's "agricultural segment performed exceptionally well" with animal feed and health products and fertilizers leading the way. At Freeport Minerals, earnings from agricultural minerals in the fourth quarter increased 155% over fourth-quarter 1978 and more than 145% for the year. And it seems that the fertilizer producers see the good times continuing despite uncertainty caused by the question of trade with the Soviet Union (C&EN, Feb. 11, page 6). At Royster, which manufactures phosphate fertilizers, J. W. Parnell Jr., president and chief executive officer, says of the U.S. embargo of grain shipments that speculation about further measures and possible changes in Department of Agriculture programs has created some uncertainty regarding farmers' planting intentions and government set-aside programs. "Thus far, however, we do not see an impact materially affecting Royster," Parnell says. And he expects strong domestic demand for fertilizers to last into spring. And at International Minerals, chairman R. A. Lenon says that the U.S. embargo on shipments of grain to the Soviets will have no short-term impact on the company's fertilizer business, and, as seen now, very little impact longer term. "The outlook for fertilizers has been progressively improving," Lenon says. 14
C&EN Feb. 18, 1980
Fertilizer also was a good investment in 1979 for the many diversified producers outside the basic chemical industry with a stake in this market. The same optimism carries into 1980, unlike prospects for a number of other chemical businesses. For example, Borden's chairman, Eugene J. Sullivan, says that the company's fertilizer operation had an excellent year in 1979. This performance and an outstanding year for the company's petrochemical-based products, notably polyvinyl chloride, more than offset lower profits from construction-oriented thermoset resins. The Estech unit of Esmark also notes strength in 1979 in fertilizer and says that the outlook for world fertilizer prices continues to be optimistic. Estech's overall chemical results in 1979 also showed higher operational profits before nonrecurring items. Some agricultural specialties turned in large gains in 1979. At Eli Lilly, the hugely successful herbicide, Trefian, powered agricultural chemical sales to a 40% gain to $470.8 million in 1979. Lilly doesn't disclose profits for this product line. In nonagricultural chemical markets, a number of diversified companies report improved results in 1979 although other of their major product lines deteriorated financially. For example, while construction-re-
comments on the foreign earnings: "Feedstock shortage and strong demand caused a recovery of depressed industry (profit) margins, particularly in Europe. Worldwide return on capital employed was 17.8% in 1979, slightly higher than for the corporation as a whole." Chemical earnings for another major petrochemical producer, Gulf Oil, more than tripled in 1979 to $275 million. The leading influences behind the jump were increased demand for aromatics such as styrene and cumene as gasoline octane improvers and increased prices for plastics such as low-density polyethylene and polystyrene. Amid the petrochemical prosperity, however, some oil companies received bad blows in chemicals last year. For example, Atlantic Richfield, which otherwise would have increased chemical earnings, went into the red m the fourth quarter as the company set up a $40 million reserve to cover the loss on its joint-venture ethylene glycol plant outside Houston. And Cities Service's chemical earnings slid into a loss for the whole year, in part because of a battered carbon black market.
lated lines such as wood and glass began to feel weakness in 1979, chemicals were strong for GeorgiaPacific and PPG Industries. In the photographic industry, both Eastman Kodak and GAF report strong chemical operations in 1979 while soaring silver costs hurt photographic profits. Possibly the company with the most to thank chemicals for is U.S. Steel. The company's restructuring in its core operations cost it an $808.6 million pretax write-off in the fourth quarter, producing an earnings deficit for both the quarter and the year. However, chairman David M. Roderick says, "Operating income for the nonsteel business segments improved significantly, with chemicals snowing the most improvement." For 1980, U.S. Steel expects seven major chemical projects, started up in late 1979, to reach full production capability early in the year. With such results, essentially nonchemical companies cashed in on chemicals' unexpectedly good year in 1979. The fourth quarter kept up the financial steam with some exceptions in auto- and housing-related products. For 1980, there are few signs yet that chemical producers are being dragged into a spreading recession. However, the year's uncertainty is high, and no one expects a repeat of 1979's gain soon. D
