NEWS OF THE WEEK HARD TIMES
BUSINESS
ENERGY COSTS HIT EARNINGS HARD Slowing economy, adverse exchange rates also depress fourth quarter
"Some of the worst conditions in our industry in a decade."
C
Charles Holliday DuPont Heft)
"Product selling prices have not keptpace with the high cost of natural gas" William Joyce Union Carbide (right)
HEMICAL INDUSTRYOBSER-
vers expected a poor fourth quarter for chemical companies. The slowing economy, high cost of energy and feedstocks, and a strong dollar relative to the euro all were expected to cut into corporate earnings. What was unexpected, perhaps, was just how deep that cut would be at some companies. John C. Hunter, chairman and chief executive officer of Solutia, summed the situation up in a nutshell: "Solutia continues to be negatively impacted by significantly higher material and energy costs, the strong valuation of the U.S. dollar against the euro, and some softening of orders in response to the slowing economy" Solutia's earnings for the fourth quarter were down
76% from the same period in 1999. Hardest hit was Union Carbide. It had earnings of $94 million in the fourth quarter of 1999, but lost $71 million during last year's final three months. This $165 million difference is larger than total fourth-quarter earnings at all but two—DuPont and Dow Chemical—of the 16 other chemicalfirmsreporting. William H.Joyce, Union Carbide's chairman and CEO, noting that natural gas prices more than quadrupled during 2000, said, "Product selling prices have not been keeping pace with the high cost of natural gas and natural gas liquids, such as ethane andpropane, which are the primary feedstocks for our olefins-chain derivatives." Georgia Gulf was the only
Chemical earnings There was nothing tame about the fourth quarter SALES EARNINGS3 ($ MILLIONS) $1,441.3 $135.6 218.8 20.1 211.4 0.1 120.3 11.8 358.4 29.8 5,345.0 243.0 6,316.0 494.0 1,372.0 52.0 952.3 50.0 363.9 -7.5 384.4 27.6 405.2 19.0 197.9 23.2 1,273.0 122.0 1,650.0 70.0 731.0 12.0 1,598.0 -71.0
Air Products Albemarle Arch Chemicals Cambrex Cytec Industries Dow Chemical DuPont Eastman Chemical
FMC Georgia Gulf W.R. Grace Great Lakes Chemical NL Industries Praxair Rohm and Haas Solutia Union Carbide
FOURTH-QUARTER 2000 CHANGE FROM 1999 EARNINGS SALES
14% -3 14 -4 -1 3 -12 9 -12 21 -3 6 -15 6 -3 -1
12% -24 -95 84 -2 -9 -15 233 -5 nm -17 -40 36 7 -35 -76
PROFIT MARGIN* 1999 2000 9.6% 9.4% 11.8 9.2
0 9.8 8.3 4.5 7.8 3.8 5.3 def 7.2 4.7 11.7
9.6 4.2 1.6 def
1.2 5.1 8.4 5.1 8.2 1.2 4.9 6.9 8.4 8.3 7.4 9.5 6.3 6.9 6.1
a After-tax earnings from continuing operations, excluding significant nonrecurring and extraordinary items, b After-tax earnings as a percentage of sales, def = deficit, nm = not meaningful.
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other reporting company with an earnings loss in the fourth quarter, showing a $75 million loss as its cost ofnatural gas increased about $20 million over the same period in 1999. Georgia Gulf also had vinyl resin profit margins decline due to a continuing slowdown in demand in the fourth quarter. At industry leader DuPont, the 15% decline in earnings reflected an increase in raw material costs— primarily oil, natural gas, and their derivatives—of about $250 million. Chairman and CEO Charles O. (Chad) Holliday Jr., however, praised cost-cutting measures that moderated the decline. "Our employees worldwide have done a tremendous job countering some of the worst conditions in our industry in a decade." It was not all bad news, however. Eastman Chemical's earnings more than tripled for the quarter, rising 233% over the comparable three-month period in 1999. Cutting costs helped, according to Chairman and CEO Earnest W.DeavenportJr. Eastman's cost-reduction program and higher selling prices more than offset increased raw material prices and the impact of the decline in the value of the euro. At FMC, which is going to separate its chemicals businesses from its equipment units, earnings fell 5% overall. But two of its three chemical segments performed well. Pretax profits from agricultural products rose 192% to $8.2 million and before-tax profits from specialty chemicals increased 59% to $25.5 million. These increases were wiped out, however, by a 49% decline in industrial chemicals to $21.8 million. Air Products & Chemicals achieved a 12% increase in earnings for the quarter. Chairman and CEO John P. Jones credited employee performance, but added, "Shifting our portfolio to higher growth markets and regions and to more value-added sectors also has enabled us to improve our earnings in a slowing economy"—WILLIAM STORCK HTTP://PUBS.ACS.ORG/CEN
