BUSINESS
Earnings Increases For Chemical Producers Drive Up Profitability • FirsPquarter earnings rose 89% for 30 chemical companies; results also improved for other chemical producers William J. Storck, C&EN Northeast News Bureau hemical earnings for the first quarter of 1995 continued to soar unhindered. In fact, major chemical companies increased earnings more, on average, than in any quarter since the current recovery began in 1991. Profit margins increased considerably as a result, especially among basic organic and inorganic chemical producers, where increases in product prices outstripped any inflation in raw material costs. Earnings improved in all major segments of the industry—from chemical companies to oil and gas producers, and from diversified companies with significant chemical operations to pharmaceutical firms. C&EN's quarterly survey of these firms shows that earnings at 30 major chemical companies—those with more
C
than half their sales in chemicals—rose an average of 89% from last year's first quarter, while earnings at 12 oil companies that have significant chemical producing capabilities increased an average of 31%. At 11 diversified companies with chemical operations, average earnings rose 43%. But at 10 drug companies, earnings increased at a much slower average of 11%. The chemical economy continued to improve generally during the first quarter, with increased demand leading to increased production and higher capacity utilization rates at chemical plants, overall price increases that were higher than any in recent quarters, a good for-
Ground rules for C&EN earnings analysis C&EN's quarterly report on financial performance of the U.S. chemical industry contains data from the 30 largest U.S. basic chemical companies and from 23 oil and diversified companies, each with more than $200 million in annual chemical sales, plus 10 pharmaceutical companies. To be included in the table of 30 basic chemical producers, a company must have at least 50% of its sales in
eign trade picture, and improving economies in overseas markets. Chemical producers continued to cut costs during the quarter as well, as employment fell once again. The cost cutting, combined with increased sales and higher plant efficiencies, produced the huge run-up in earnings. For the 30 major chemical companies, combined after-tax earnings rose 89% from last year's first-quarter total to $2.39 billion. Combined sales for the quarter increased 23% to $24.3 billion, giving a 9.8% average profit margin for the group, up significantly from 6.4% in first-quarter 1994. For the 11 diversified companies with
chemicals. That is why DuPont, for example, is included in the table of diversified manufacturers. In referring to chemical sales, C&EN means those chemicals whose molecular composition has been changed in the course of manufacture. Hence, chemical sales include those of traditional categories of basic petrochemicals and inorganics, organic intermediates and inorganic compounds, polymers such as plastics and fibers, and agricultural chemicals and specialty derivatives.
Leading chemical companies for first-quarter 1995 Earnings3
Sales Rank 1995
1 2 3 4 5 6 7 8 9 10
Dow Chemical $5,962.0 1 Monsanto 2,318.0 2 Union Carbide 1,453.0 3 W.R. Grace 1,345.2 4 Eastman Chemical 1,232.0 5 Arco Chemical 1,141.0 9 Rohm and Haas 985.0 7 Air Products 982.9 6 Morton Internationa 921.0 8 Olin 766.1 12
$633.0 Dow Chemical Monsanto 229.0 Union Carbide 210.0 132.0 Eastman Chemical 126.0 Arco Chemical Rohm and Haas 96.0 89.9 Morton International Air Products 88.6 70.6 Hercules 70.0 International Flavors
Note: Based on 30 chemical companies listed on page 14. a After taxes, b Revised.
12
MAY 15,1995 C&EN
Profitability Earnings as Rank % of sales 1994
Rank $ Millions 1994
Rank $ Millions 1994
2 1 5 9 11 6 4 3 10 8
Georgia Gulf International Flavors Union Carbide Loctite Great Lakes Chemical Nalco Chemical First Mississippi Arco Chemical Eastman Chemical Dow Chemical
19.2% 18.7 14.5 12.5 12.0 12.0 11.2 11.0 10.7 10.6
14 1 15 3 2 5b 24 17 19 22
Chemical industry 1995 first-quarter results • • • • •
Sales increased 23% Earnings jumped 89% Profit margin rose to 9.8% Output was up almost 8% Prices soared 11%
Sales
Earnings
% change from year-earlier quarter 25
% change from year-earlier quarter 90 f
20
15
10
••M 0 1993
1994
1995
1993
1995
1994
Profit margin
Production
Prices
After-tax earnings as % of sales
% change from year-earlier quarter
% change from year-earlier quarter
I
I II
8f
Ksli^^^^^^^^^^Si
..•••;••••• 1993
1994
1995
1993
1994
1995
1993
1994
1995
Note: All sales, earnings, and profit-margin data are based on 30 chemical companies listed on page 14.
significant chemical operations, combined earnings from all operations increased 43% to $1.93 billion on a 35% sales rise to $23.9 billion. The average profit margin for the group was 8.1%, up slightly from 77% in last year's first quarter. For the 12 oil and gas companies, combined after-tax earnings from all operations rose 31% to $3.9 billion as sales increased 15% to $84.1 billion. Average profit margin for the group rose to 4.6% from 4.1% a year earlier. For the group of 10 pharmaceutical companies, sales increased more than earnings during the quarter, on a yearto-year basis, forcing profit margins
down. Combined earnings for the group increased 11% to $3.84 billion on an 18% sales rise to $23.2 billion. The result was a drop in the average profit margin to 16.5% from 17.6% in last year's first quarter. Although earnings increased for all chemical companies and most other chemical producers, companies that produce basic commodity chemicals showed the greatest improvement as demand and prices for commodities grew. Shipments of industrial chemicals, according to government figures, increased 20% in the first quarter, while industrial chemical prices increased about 16%. Thus, profit margins among produc-
ers of commodity chemicals shot up. For the first quarter, six such chemical companies broke into the ranking of the 10 best performers in terms of profitability after being well out of these rankings last year. Georgia Gulf, for instance, moved up to first from 14th, Union Carbide to third from 15th, First Mississippi to seventh from 24th, Arco Chemical to eighth from 17th, Eastman Chemical to ninth from 19th, and Dow Chemical to 10th from 22nd. First Mississippi, whose earnings increased more than 300%, is a good example of this group. The company says that in its fertilizer operations, operating profits were $25.5 million, up from MAY 15,1995 C&EN
13
BUSINESS
Earnings, profit margins up substantially for 30 major chemical companies 12-MONTH RUNNING DATA
FIRST-QUARTER 1995 Earnings8
Sales
Sales
($ millions)
Air Products Albemarle Arco Chemical Betz Laboratories Cabot
$
982.9 313.3 1,141.0 177.9 481.3
$
Change from 1994 Earnings
Profit margin" 1995
1994
8.5% 4.5 5.9 10.7 5.1
88.6 14.6 126.0 18.7 46.4
14% 30 51 3 11
21% 35 180 1 108
9.0% 4.7 11.0 10.5 9.6
Change from 1994 Sales
10% na 20 3 7
Earnings
15% na 47 -10 144
Profit margin" 1995
1994
8.6% 4.2 9.6 10.3 6.9
8.3% na 6.8 10.2 4.3
Crompton & Knowles Dow Chemical Eastman Chemical Ethyl First Mississippi
168.2 5,962.0 1,232.0 234.3 176.3
13.2 633.0 132.0 21.5 19.7
26 31 25 0 36
3 250 136 54 302
7.8 10.6 10.7 9.2 11.2
9.6 4.0 5.7 6.0 3.8
12 27 16 na 31
12 207 39 na 1,742
8.2 7.2 9.0 9.3 9.0
9.4 3.5 6.9 na 2.2
H. B. Fuller Geon Georgia Gulf W.R. Grace Great Lakes Chemical
295.6 336.2 314.0 1,345.2 569.0
6.0 21.4 60.2 67.5 68.3
22 29 63 25 27
50 206 374 77 2
2.0 6.4 19.2 5.0 12.0
1.6 2.7 6.6 3.5 14.9
16 27 38 19 20
-3 nm 290 45 15
2.9 5.6 15.8 5.8 12.7
2.9 1.9 5.9 5.4 15.1
Hercules IMC Global International Flavors Loctite Lubrizol
693.0 550.0 373.6 196.8 416.7
70.6 45.7 70.0 24.6 40.6
2 34 15 23 4
29 381 19 34 13
10.2 8.3 18.7 12.5 9.7
8.1 2.3 18.2 11.4 9.0
2 47 13 19 4
75 nm 21 9 39
10.3 6.0 17.4 12.0 9.5
7.9 def 17.1 10.7 7.9
Monsanto Morton International Nalco Chemical Olin Petrolite
2,318.0 921.0 315.4 766.1 92.3
229.0 89.9 37.8 38.4 6.2
16 14 -6 27 1
18 26 12 151 15
9.9 9.8 12.0 5.0 6.7
9.7 8.8 10.1 2.5 5.9
8 20 -4 16 2
98 84 5 158 22
7.7 8.8 11.7 4.0 5.5
6.7 7.7 10.9 1.8 5.8
Praxair Rohm and Haas Stepan Union Carbide Witco
756.0 985.0 134.8 1,453.0 602.5
65.0 96.0 6.1 210.0 23.6
24 15 26 29 9
55 43 205 197 7
8.6 9.7 4.5 14.5 3.9
6.9 7.8 1.9 6.3 4.0
16 11 9 14 4
73 39 15 396 57
7.6 8.0 3.8 10.1 4.6
6.4 5.8 2.3 4.4 4.2
$24,303.4
$2,390.6
6.4%
20%
TOTAL
23%
89%
9.8%
65%
8.1%
|
5.8%
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales. def = deficit. na = not available, nm = not meaningful.
just $5.5 million the year before. The improvement was primarily due to higher prices resulting from tight supply and strong demand from agriculture and industry. Ammonia prices, according to First Mississippi, were up 72% for the quarter compared with last year; urea prices increased 55%. At the same time, cost margins were helped by lower prices for natural gas, the feedstock for these commodities. Natural gas prices were 18% below the average for the first quarter last year. At Georgia Gulf, price increases more than offset lower sales volume that was a result of "unexpected outages" in its chlorine-caustic soda and methanol units during the first quarter. 14
MAY 15,1995 C&EN
The company increased the price of its volumes, along with lower operating products an average of 68% from last expenses. Shell Oil also noted that increases were most significant in its year's first quarter. The effect of higher prices on com- commodity chemicals businesses, remodity chemicals can easily be seen at flecting strong demand as chemical oil companies. At Amoco, earnings from earnings rose 215% to $217 million. And at Occidental Petroleum, chemichemical operations in the first quarter nearly tripled to $233 million from just cal earnings, excluding unusual items, $88 million the year before. The compa- were $300 million, almost 12 times highny noted that this was the strongest per- er than in the first quarter of 1994. This formance ever for its chemical business, increase came on a 48% rise in chemical because earnings were favorably affect- sales to $1.47 billion. The earnings ined by strong volumes and cost margins, crease, the company says, came primariparticularly for olefins, polymers, and ly from substantially higher cost marpurified terephthalic acid, and by cost- gins for polyvinyl chloride, caustic soda, and petrochemicals. cutting measures. While commodity chemical producAt Exxon, chemical earnings increased 267% to $547 million, as a re- ers were reveling in higher prices for sult of higher cost margins and sales their products, these price increases
translated into higher raw material costs for downstream producers. The result was much lower—but still good—increases in earnings for many large- and medium-sized chemical companies that depend on commodi ties as raw materials. At Rohm and Haas, which posted a respectable 43% increase in earnings to $96 million on a 15% improvement in
sales to $985 million, J. Lawrence Wil son, chairman and chief executive offi cer, says: "Earnings are up because vol ume is up, productivity continues to im prove, and currencies are running in our favor. These factors enabled us to over come the fact that selling price increases did not cover higher raw material costs." Some companies are even rooting against the commodity chemical price
Earnings also rose for other major chemical producers FIRST-QUARTER 1995 Earnings3
Sales
($ millions)
OIL AND GAS COMPANIES Amoco $ 7,558.0 Ashland 2,757.0 Chevron 9,044.0 Exxon 29,779.0 Fina 863.2 Kerr-McGee Mobil Occidental Petroleum Phillips Petroleum Shell Oil
$ 523.0 -29.0 396.0 1,660.0 33.5
Change from 1994
Profit margin"
Sales
1995
12% 24 9 15 11
Earnings
31% nm -7 43 34
ÏUT
6.9% def 4.4 5.6 3.9
5.9% 1.5 5.1 4.5 3.2
463.9 17,627.0 2,714.0 3,124.0 5,658.0
36.8 636.0 178.0 121.0 303.0
24 17 29 7 18
433 19 nm 11 38
7.9 3.6 6.6 3.9 5.4
1.8 3.5 def 3.7 4.5
2,588.0 1,960.0
-7.0 54.0
25 2
nm -24
def 2.8
1.6 3.7
$84,136.1
$3,905.3
15%
31%
4.6%
4.1%
DIVERSIFIED MANUFACTURERS AlliedSignal $ 3,419.0 DuPont 10,502.0 Engelhard 694.5 Ferro Corp. 342.9 FMC 1,032.1
$ 198.0 959.0 27.6 13.1 52.4
15% 70 25 21 11
17% 49 21 16 14
5.8% 5.7% 10.4 9.1 4.1 4.0 4.0 3.8 5.1 5.0
Freeport-McMoRan BF Goodrich 3M Mallinckrodt PPG Industries Vulcan Materials TOTAL
663.3 594.0 4,087.0 569.1 1,740.8 294.4 $23,939.1
30.6 17.6 376.0 48.1 195.0 16.0 $1,933.4
48 18 13 17 18 36 35%
nm 259 23 12 60 nm 43%
4.6 3.0 9.2 8.5 11.2 5.4 8.1%
def 1.0 8.4 8.8 8.3 def 7.7%
PHARMACEUTICAL COMPANIES Abbott Laboratories $ 2,524.4 American Home Products 3,491.0 Baxter International 2,318.0 Bristol-Myers Squibb 3,301.0 Eli Lilly 1,717.3
$ 417.3 398.6 185.0 657.0 374.8
14% 63 6 16 31
14% -4 41 13 5
16.5% 11.4 8.0 19.9 21.8
16.5% 19.4 6.0 20.5 27.2
Merck Pfizer Schering-Plough Upjohn Warner Lambert TOTAL
757.4 420.4 278.6 151.6 201.4 $3,842.1
9 21 7 1 9 18%
12 13 10 22 6 11%
19.8 17.5 22.4 18.7 12.6 16.5%
19.2 18.7 21.8 15.5 12.9 17.6%
Sun Co. Unocal TOTAL
3,817.3 2,402.9 1,244.3 808.7 1,604.6 $23,229.5
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales, def = deficit, nm = not meaningful.
increases. At Albemarle, Floyd D. Gottwald Jr., chairman and CEO, says: "In olefins and derivatives, strong demand in linear α-olefins resulted in signifi cant sales growth in the first quarter over the corresponding period in 1994, while 1995 operating earnings contin ued to be adversely impacted by high ethylene prices. We continue to be hopeful that ethylene prices will de cline as the year progresses." Despite the pinch of raw material costs, most of the downstream compa nies, as well as the basic chemical pro ducers, see continued good fortune through 1995. Albemarle's Gottwald says, "While the results for the first half of 1995 will likely be lower than our strong 1994 first half, primarily because of higher ethylene prices in the first half of 1995, we still expect Albemarle's 1995 annual results to show an improvement over 1994's good performance." At Eastman Chemical, Earnest W. Deavenport Jr., chairman and CEO, says of the remainder of the year, "We see some signs that could portend a softening of the U.S. economy in the last half of 1995, but we see no signs that indicate a similar softening of economies elsewhere in the world." Praxair's chairman and CEO, H. Wil liam Lichtenberger, says, "We are on our way to another record year and are committed to sustaining earnings growth, even if the economy slows." Says Frank Popoff, Dow Chemical's chairman and CEO, "We are optimistic that the earnings recovery that we are experiencing will continue. The current state of the global economy and strong industry fundamentals will benefit us well into the future." Π
Industry group weighs reengineering's value Few, if any, chemical companies have been untouched by reengineering. So ifs not surprising that the Chemical Manage ment & Resources Association (CMRA) focused on reengineering at its recent an nual meeting held in New York City. An ecdotal company experiences—including those from Eastman Chemical, Quantum Chemical, Cytec Industries, and Amoco— and perspectives from industry consult ants fueled debate on the pros and cons of corporate reengineering. The early definition of reengineering MAY 15,1995 C&EN
15
