Chemical & Engineering News

June 23, 1997

Copyright © 1997 by the American Chemical Society

FINANCES: Sales, earnings drop

The U.S. chemical industry in 1996 presented a financial picture that was typical of an industry late in the economic cycle. Demand was down in some major markets, such as automobiles and textiles; exports were up slightl y, but imports grew faster. And the slowdown in the industry during the second half of 1995 carried over into all of 1996 with little relief in sight.

However, pricing was the biggest culprit in the chemical industry's retreating finances last year. On the selling side, overall prices of chemical products once again showed little growth from the year before, but on the buying side, feedstock prices for major commodity chemicals for much of the year were higher than they had been in 1995. This, combined with lackluster demand growth - including both weak foreign trade improvement and, in some major areas, no growth at all - caused declines in chemical sales, earnings, and profitability, despite improvement in productivity.

Sales, earnings, and profitability dropped in 1996

Note: Based on data for 30 major chemical companies, (C&EN, Feb. 17, page 18). a After-tax earnings as a percentage of year-end stockholders' equity. b After-tax earnings as a percentage of sales.

For 30 major chemical companies regularly tracked by C&EN, combined sales in 1996 fell about 1% from 1995 levels to some $90 billion. And combined earnings dropped 13% to $7.68 billion.

And so profitability also headed the wrong way last year. The aggregate profit margin for the 30 chemical companies last year was 8.5%, down significantly from 9.7% in 1995, but still high on a historical basis. And return on stockhold ers' equity declined to 21.8% from 23.9% the year before.

For the biggest chemical category, industrial chemicals - which represent almost 50% of total chemical shipments - government data show that the value of shipments actually declined 2% last year, the first such downturn in more than a decade. And prices for this important segment fell 1% from 1995.

Some of the drop in demand for industrial chemicals came from declines in exports, especially among organic chemicals. This group registered an 8% decline in exports in 1996. Exports for other chemical categories, except fertilizers, grew in 1996.

Thus, it was not all bad news last year. For instance, productivity improved in the chemical industry, unfortunatel y at the expense of jobs. The number of production workers fell for the first time since 1992. And this, along with moderate hiring of white-collar employees, caused sales per employee to increase for many chemical companies.

Future-oriented spending also rose last year for many companies. According to C&EN surveys, R&D spending for 17 chemical companies increased 1% in 1996 following a 12% decline in 1995. However, because of the slow growth in R&D spending last year, outlays for research and development remained unchan ged as a percentage of sales for the 17 chemical companies. And this ratio remains at its lowest level in more than a decade at less than 4%.

In fact, 1996 was the first year of increase for this group of companies since 1992. For 12 pharmaceutical and diversified companies, however, R&D spending rose just 7% compared with a 14% jump in 1995.

Capital spending also increased last year. For 24 major chemical producers, spending on new plants and equipment rose 6% from the year before. But this is a considerable slowdown in the growth rate from 23% in 1995.

Capital spending as a percentage of sales for this group of chemical companies rose to 8.8% last year from 8.5% in 1995.

Mergers, acquisitions shuffle the ranks of Top 100 chemical producers

FINANCIAL ANALYSIS: Lackluster year on the income and balance sheets


COMPANY RESULTS: Shuffled assets