NEWS OF TH E WEEK
BIG FIRMS SEE STRONG QUARTER EARNINGS: Diversified chemical
makers managed their way to profits despite lumpy markets
I
N THE THIRD QUARTER, one word was used by
executives to describe global demand for chemicals: volatile. Dow Chemical, DuPont, Celanese, and Huntsman Corp. were able to take advantage of their diverse businesses and flexible management to significantly grow profits compared with the year-ago quarter. Nevertheless, Dow and DuPont, in particular, continue to fend off pressure from activist investors to break into smaller, more specialized businesses. At Dow, earnings shot up 43.6% to $860 million, even though sales edged up less than 5% compared with the year-ago quarter. The company attributed its success not to a revved up economy but rather to its low-cost feedstocks, geographic diversity, and high operating rates. Dow did see 6% sales growth in emerging economies, thanks to strong demand in areas such as its Latin American performance plastics business. With both operating rates and prices on the upswing, the firm’s overall profit margin moved from 4.4% to 6.0%. Dow’s earnings per share of 72 cents beat analyst expectations by 6 cents. At DuPont, results were in line with expectations. Earnings expanded by more than a third, reaching $477 million compared with last year, while sales shrank by 2.9% as a result of portfolio adjustments, a weak agriculture market, and a sluggish economy. Sales grew in only two of seven segments—industrial biosciences and nutrition and health. Bright spots for demand included insecticides and fungicides in Latin America and enzymes for the ethanol industry in the U.S.
In conference calls with analysts, both Dow CEO Andrew N. Liveris and DuPont CEO Ellen J. Kullman stressed that they expect markets to remain volatile and that they rely on their diversification to generate profits. Still, both giants are feeling heat from activist investors and are rearranging their portfolios significantly. Liveris reiterated his plan to divest up to $6 billion worth of assets, including Dow’s chlorine-related businesses, and Kullman said DuPont’s spin-off of its performance chemicals business is on schedule. Flexibility was a factor in the 30.9% jump in earnings reported by Celanese. The firm benefited from successful new products in its advanced engineered materials business, while lower demand for emulsion polymers in Europe was a drag on its industrial specialties segment.
THIRD-QUARTER CHEMICAL RESULTS Diversified firms led the pack in earnings growth SALES EARNINGSa ($ MILLIONS)
Albemarle Celanese Cytec Industries Dow Chemical DuPont FMC Corp. W.R. Grace Huntsman Corp. Praxair
$642 1,769 507 14,405 7,511 1,016 856 2,884 3,144
$90 250 54 860 477 127 75 147 477
CHANGE FROM 2013 SALES EARNINGS
8.6% 8.1 9.3 4.9 -2.9 6.2 11.0 1.5 4.3
-1.1% 30.9 10.2 43.6 34.0 15.5 -2.6 11.4 7.2
PROFIT MARGINb 2014 2013
14.0% 14.1 10.7 6.0 6.4 12.5 8.8 5.1 15.2
15.1% 11.7 10.6 4.4 4.6 11.5 10.0 4.6 14.8
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales.
Huntsman saw comparatively broad growth, including in demand for polyurethane materials, amines, aerospace composites, and environmentally friendly textile dyes and chemicals. Overall, it raised earnings by 11.4% compared with the year-ago quarter. The firm said it is on track to integrate its recent acquisition of Rockwood Holdings’ performance additives and specialty titanium dioxide businesses.—MELODY BOMGARDNER
RISK ASSESSMENT EPA enlarges list of chemicals for further scrutiny, potential controls Bisphenol A (BPA), two flame retardants, and seven phthalates are among the 23 chemicals or groups of compounds that EPA added to a list of substances it’s assessing for possible regulation. EPA also removed 16 chemicals from the list, including 13 that the agency claims are no longer sold in the U.S. The changes, made in late October, reflect new data that industry submitted to EPA about chemical releases and potential exposures. This marks the first time the agency has updated its list of chemicals, established in 2012, to scru-
tinize for potential regulation under the Toxic Substances Control Act. The list now contains 90 substances or groups of compounds that can cause reproductive, developmental, or neurotoxic effects; are carcinogenic; or are in children’s products. The American Chemistry Council, an industry group, raised concerns about some of the newly added chemicals, notably BPA and phthalates. Other regulatory programs at EPA or other federal agencies have already reviewed these substances, the group says. For some chemicals, controls are already
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in place to manage risks, it says. Meanwhile, Richard Denison of the Environmental Defense Fund, an advocacy group, questioned EPA’s conclusion that some of the chemicals stricken from the list are no longer in commerce. The agency collects data only on substances produced in quantities of 25,000 lb or more per site each year. Given this reporting threshold, EPA needs to explain “how it has determined that these chemicals are no longer being produced in or imported into the U.S. at any level,” Denison says.— BRITT ERICKSON
