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March 26, 2001
Volume 79, Number 13
CENEAR 79 13 pp.17
ISSN 0009-2347
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Air Products, Rohm and Haas see first-quarter results well below last year's


Last week, two major specialty chemical companies--Air Products and Rohm and Haas--issued profit warnings, saying earnings per share in the current three-month period will be below what securities analysts have expected.

U.S. Chemical Balance Slips Into Negative
For only the second time in memory, the monthly chemical trade balance has fallen into deficit. According to data from the Commerce Department, chemical trade showed a $400 million deficit in January, down from a surplus of $629 million in December and $593 million in January of last year. January exports of $6.57 billion were up 1.5% from December and 19.0% from 12 months earlier, but imports jumped 19.2% and 41.4%, respectively, to $6.97 billion. The culprit was largely the organic chemicals sector, where the deficit deepened to $1.50 billion from $767 million in December and $283 million a year earlier. The last time there was a chemical trade deficit was June 1999.--WILLIAM STORCK
Air Products says earnings from operations for what is actually its second fiscal quarter ending this month will be about 53 cents a share, down from 66 cents in the same period of last year. Analysts were expecting about 60 cents a share.

The downward revised outlook, the company says, stems primarily from a sharper than expected decline in U.S. manufacturing demand for chemicals and, to a lesser extent, some industrial gases. John P. Jones, Air Products' chairman and CEO, says the company "is experiencing short-term impacts from the weakening U.S. economy. Our chemical business has been severely impacted by customer outages, softness in some end markets, and lower margins as price increases continued to lag raw material cost increases."

Rohm and Haas indicated that first-quarter earnings will be in the range of 27 to 29 cents per share, compared with 32 cents in fourth-quarter 2000 and a "record-setting" 61 cents in the first quarter of last year. The average Wall Street estimate for this quarter was 37 cents a share.

Chairman and CEO Raj L. Gupta noted that at this time last year the economy was robust, raw material costs were low, foreign currencies were not an issue, and energy costs were cheap in comparison to today. "Every one of these factors has swung to the farthest end of the pendulum since then. We said earlier that we expected our first-quarter comparisons to be ugly, and those expectations have been met."

As the quarter closes, there will be more warnings. Fred Siemer, an independent chemical analyst and publisher of the newsletter Chemical Research for Wall Street, says, "This quarter, in terms of earnings comparisons, will just be horrendous."

When will better times return DuPont Chairman and CEO Charles O. (Chad) Holliday had one of the frankest statements: "We do not see the upturn yet. It may happen in the second half of the year. It's too early to tell."

The key issue for the future, according to Siemer, is how fast the chemical industry is able to correct such basics as inventories and how soon consumer confidence will recover. "With prices due to go down, as they are already doing in the ethylene chain, people are going to put off buying." Siemer believes that the chemical industry is in for another quarter, and probably two, of poor results. "Companies," he says, "are talking about a stronger second half. The proof is in the pudding."

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