BUSINESS
Profitability Plummets at U.S. Chemical Companies Profit margins and return on investment, assets, and equity all declined last year from 1981; specialty firms continue to top profitability rankings William J. Storck, C&EN New York
Along with practically every other financial measure, profitability among U.S. chemical companies suffered in 1982 as the recession dug deeper and deeper into operations. Rates of return for the industry and indeed for most companies dropped sharply last year compared with 1981. In a survey of 36 U.S. chemical companies, C&EN found that profit margins (net earnings as a percentage of sales) dropped to 4.1% last year
from 5.6% the year before. Return on The top companies in investment (net income as a per centage of current assets plus gross overall profitability plant) fell to 3.1% in 1982 from 4.8% 1 International Flavors in 1981. Return on assets (net income 2 Nalco Chemical as a percentage of total assets) 3 Petrolite dropped to 4.1% from 6.2%. And re 4 Chemed turn on equity (net income as a per 5 Great Lakes Chemical centage of year-end stockholders' ι 6 First Mississippi equity) fell to an average of 8.5% 7 Loctite from 13.4% in 1981. 8 International Minerals As in previous years, companies 9 W. R. Grace with more narrowly focused and 10 Freeport-McMoRan higher value-added product lines 10 Lubrizol dominated the top profitability rankings. However, unlike previous years, ducer, Freeport-McMoRan, was able fertilizer-dominated companies did to take a first place, in profit margin. not rank particularly high in any of In 1982, however, the best that the the rankings, except for profit mar fertilizer companies could do was a gins, as the fertilizer business cycle second place—again, it was Freeseems to have run its course. This port—in profit margin. However, decline appears to have started in Freeport's other profitability rank 1981, when only one fertilizer pro- ings were low enough to drop it to
Prof»t margins at U.S. chemical companies fell to 4.1 % in 1982 b
Rank* 1982 1901
1 2 3 4 5
e
7 8 9 10 11 12 13 14 15 15 17 17
2 1 9 3 7 4 11 8 25 10 6 12 5 20 17 14 18 25
Profit margln 1082 1981
International Flavors Freeport-McMoRan First Mississippi Nalco Chemical Petrolite Great Lakes Chemical International Minerais Stauffer Chemical Loctite Air Products Chemed Liquid Air Lubrizol Ethyl W. R. Grace Monsanto PPG industries Rohm & Haas
14.1% 12.0 10.4 10.0 9.7 9,4 7.8 7.7 7,3 6.8 6.7 6,1 5.9 5.8 5,2 5,2 4,7 4,7
14.7% 19.1 8,3 12.2 9.4 11.7 7.7 8.7 4.9 8.0 10.0 7.4 10,2 5.2 5,5 6.4 6,3 4.9
1
Profit margin* 1982 1SS1
Rank» 1982 isai
19 20 20 22 23 24 24 26 27 28 28 30 31 32 32 34 35 36
35 20 13 28 18 23 29 14 27 30 32 36 40 32 23 38 31 37
Stepan Chemical FMC National Distillers Essex Chemical American Cyanamld Hercules Olin Union Carbide Dow Chemical H. B. Fuller Pennwalt Witco Chemical GAF r Crompton & Knowles Williams Cos. Reichhold Chemicals Celanese 3. F. Goodrich AV£8A0E*
4.4 4.3 4.3 4,0 3,8 3.5 3,5 3.4 3.2 2,6 2.6 2.3 2.0 1.8 1.8 0.6 0.2 def 4,1%
3,2 5.2 6.7 4J 5.4 5.0, 4.6 6.4 4.8 4,1 3.5 3.0 def 3,5 5.0 1.8 3.8 2.9 5,6%
a Ranking for 1981 Is as it appeared in previous survey {GS£H, Mm 7,19&2, page 17).feAfter-tax Income as a percentage of sales, c Average Is for companies listed in previous survey; itef •» deficit. ' ; ' , ' * •
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June 27, 1983 C&EN
Returnion investment dropped to 3.1 % 1982
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 15 17 18
Return on Investment 5 1982 1981
Rank* 1981
1 3 2 5 22 16 7 4 9 18 11 14 35 10 19 15 26 6
Chemed International Flavors Nalco Chemical Petrolite Monsanto Loctite Great Lakes Chemical Lubrlzol First Mississippi Ethyl W. R. Grace International Minerals Stepan Chemical National Distillers FMC Stauffer Chemical Rohm & Haas Freeport-McMoRan
14.0% 12.4 11.1 10.8 8.3 7.7 6.7 6.0 5.8 5.5 5.4 4.9 4.8 4.5 4.4 4.4 4.3 4.2
15.1% 13.1 14.5 11.0 5.1 5.7 8.5 11.5 7.8 5.5 7.2 6.1 3.4 7.7 5.3 5.8 4.7 8.8
1982
Rank· 1981
19 19 21 22 23 23 25 26 27 28 29 30 30 32 33 33 35 36
13 21 8 26 19 29 24 24 16 30 31 33 40 26 36 34 37 38
Return on Investment* 1981 1982
Essex Chemical Liquid Air H. B. Fuller Air Products PPG Industries Wltco Chemical American Cyanamld Hercules Crompton & Knowles Olin Pennwalt Dow Chemical GAF Union Carbide Relchhold Chemicals Williams Cos. Celanese B. F. Goodrich AVERAGE6
4.0 4.0 3.8 3.6 3.5 3.5 3.2 3.0 2.9 2.5 2.4 2.3 2.3 2.2 1.0 1.0 0.1 def 3.1%
6.6 5.2 7.9 4.7 5.3 4.3 4.8 4.8 5.7 3.9 3.7 3.6 def 4.7 3.3 3.5 3.1 2.7 4.8%
a Ranking for 198 1 is as it appeared in previous survey (C&EN, June 7, 1982, page 17). faAfter-tax earnings as a percentage of current assets plus gross plant, c Average for 1961
10th place in terms of overall profitability. One other mineral-dominated company, First Mississippi, was much more consistent. Its place on all four profitability rankings was high enough to give it sixth place in terms of overall profitability. The profitability leaders are figured by adding their rankings. The lowest ranking is then considered to
represent the best overall profitability. International Flavors, by this method, came in first. It scored first place in both profit margin and return on assets, second in return on investment, and fourth in return on stockholders' equity. The second-best company in terms of overall profitability—Petrolite—
led in no category. However, it was fairly consistent in all of them with rankings of fifth in profit margin, fourth in return on investment, and second in return on assets and return on equity. Nalco Chemical, tied with Petrolite for second, placed fourth in profit margin and third in return on investment, return on assets, and return on equity.
Retiim on assets declined to 4.1 % last year 1982
Rank* 1981
1 1 3 4 5 6 7 8 9 9 11 12 13 14 15 16 16 18
2 3 1 5 7 28 4 16 12 19 16 8 14 37 24 6 15 22
Return on • S M t t b 1982 1981
International Flavors Petrolite Nalco Chemical Chemed Great Lakes Chemical Loctite Lubrlzol W. R. Grace International Minerals Rohm & Haas Ethyl First Mississippi Stauffer Chemical Stepan Chemical FMC Freeport-McMoRan Monsanto Liquid Air
14.6% 14.6 13.9 10.1 8.1 7.9 7.4 6.5 6.3 6.3 6.2 5.9 5.7 5.6 5.5 5.4 5.4 5.1
15.3% 14.1 17.4 10.9 10.6 5.7 13.7 7.2 7.8 6.9 7.2 9.3 7.4 3.7 6.4 10.8 7.3 6.5
1982
19 20 20 22 23 24 25 26 27 28 29 30 30 32 33 34 35 36
Return on a · — t t * 1981 1982
Rank* 1981
21 13 18 10 30 24 20 9 28 32 27 33 26 40 26 35 37 38
Air Products Essex Chemical PPG Industries National Distillers Witco Chemical American Cyanamld Hercules H. B. Fuller Olin Pennwalt Crompton & Knowles Dow Chemical Union Carbide GAF Williams Cos. Relchhold Chemicals Celanese B. F. Goodrich AVERAGE0
4.9 4.7 4.7 4.6 4.5 4.4 4.3 4.2 3.9 3.2 3.0 2.9 2.9 2.6 1.3 1.3 0.2 def 4.1%
6.7 7.6 7.1 8.0 5.3 6.4 6.8 8.6 5.7 4.7 6.0 4.5 6.2 def 4.0 4.2 4.8 3.4 6.2%
a Ranking for 1981 is as it appeared in previous survey (C&EN, June 7.1982, page 17). b After-tax income as a percentage of total assets, c Average is for companies listed in previous survey, def = deficit.
June 2 7 , 1983 C&EN
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Business Rettirnonsstockholders' equity plummeted to 8.5% 1982
1 2 3 4 5 6 6 8 9 10 11 12 13 14 15 16 17 18
5 Return on equity 1981 1982
Rank" 1981
16 5 1 6 28 2 4 10 11 36 3 13 24 12 15 17 25 9
Chemed Petrolite Nalco Chemical International Flavors Stepan Chemical Essex Chemical First Mississippi W. R. Grace Great Lakes Chemical Loctite Freeport-McMoRan International Minerals Ethyl Air Products Stauffer Chemical FMC Rohm & Haas H. B. Fuller
33.6% 20.6 19.1 18.8 16.7 16.0 16.0 14.6 13.6 12.8 12.3 12.1 11.7 11.5 11.4 11.3 10.6 10.5
13.8% 21.4 24.2 20.0 12.1 23.8 21.5 17.5 16.5 8.6 22.5 15.8 12.6 16.3 14.6 13.6 12.3 17.9
1982
19 20 21 22 23 24 25 26 26 28 29 29 31 32 33 34 35 36
Return on •qulty* 1981 1982
Rank* 1981
7 20 27 19 20 23 20 17 29 31 40 35 25 31 34 33 29 37
Lubrizol Wltco Chemical Liquid Air Monsanto PPG Industries American Cyanamid Hercules National Distillers Olin Dow Chemical GAF Pennwalt Union Carbide Crompton & Knowles Williams Cos. Reichhold Chemicals Celanese B. F. Goodrich AVERAGE0
10.3 10.0 9.8 9.4 9.1 8.6 8.1 7.8 7.8 6.8 6.7 6.7 6.0 5.5 2.9 2.8 0.4 def 8.5%
19.7 13.0 12.2 13.4 13.0 12.9 13.0 13.6 11.7 11.5 def 9.5 12.3 11.5 9.6 9.8 11.7 8.4 13.4%
a Ranking for 1981 is as it appeared in previous survey (C&EN. June 7, 1982, page 17) b After-tax income as a percentage of year-end stockholders' equity, c 1981 average is for companies listed in previous survey def = deficit
Chemed led in the other two rankings, return on equity and return on investment, and it had fourth place in return on assets. However, its eleventh place in profit margin pulled it down so that it could do no better than fourth place in overall profitability. Although in general, the smaller,
more specialized companies were the leaders in almost all categories, one large chemical company, W. R. Grace, managed a respectable performance in terms of overall profitability. Grace ranked 15th in profit margin, 11th in return on investment, and eighth in both return on assets and equity. This was enough to give it
About C&EN's profitability rankings C&EN's rankings of companies for profitability are based on 36 large chemical firms using nonrestated data. Thus, the 1982 ratios are compared with ratios from data published for the end of 1981 and not restated in 1982 annual reports for 1981. In addition, the averages that appear at the end of each listing are for the companies that appeared on the list for the respective years. In other words, the 1982 average is for the companies on the list this year. Thé average for 1981 is for the companies that appeared on a similar list last year (C&EN, June 7, 1982, page 17). Also, the 1981 rankings are based on the list that was published last year. All of the companies that appear in the rankings this year were included in last year's list, which was made up of 40 companies. The four companies that
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June 27, 1983 C&EN
were dropped this year are Allied, Thiokol, Philip A. Hunt, and Akzona. Allied, after a series of acquisitions, does not have enough chemical sales as a percentage of total sales to make it comparable to the other companies on the list. Akzona was acquired by Akzo and no longer publishes financial data. Most of Philip A. Hunt's sales and earnings are reported through Olin, which would give the effect of double counting if the smaller company were also included. Thiokol has merged with Morton Norwich to make Morton-Thiokol. Although this company undoubtedly will be included in the future, no full-year numbers for the new company are available. These four companies are still considered in the 1981 rankings, however. Thus, although 36 companies are ranked for 1982, some 1981 rankings go up to 40th place.
ninth place in terms of overall performance. A few other companies with sales of more than $1 billion did well in one category. For instance, Monsanto was able to garner fifth place in return on investment, up from 22nd place in 1981. Stauffer Chemical, which consistently ranks high in profit margin, came in eighth in 1982, the same position as the year before, despite a decrease in its profit margin to 7.7% last year from 8.7% the year before. Rohm & Haas was in the top 10 in return on assets, ranking ninth in that category, and Air Products came in 10th in the profit-margin ranking. One other company with sales of more than $1 billion—Ethyl—managed a 10th place in return on investment. In general, the falling averages of the company samples were indicative of the way that the individual companies were going. Of the 36 companies surveyed, only seven had a better profit margin in 1982 than they did in 1981, but 29 fell. For return on investment, just four improved in 1982, 31 fell, and one stayed the same. The same number, four, had increases in return on assets, but 32 dropped. Four had improvements in return on equity, but 32 had decreases in their ratios. D
