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Chemical earnings
Most firms continue fall in second quarter

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Chemical Earnings Down
[C&EN, May 21, 2001]

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July 30, 2001
Volume 79, Number 31
CENEAR 79 31 p. 15
ISSN 0009-2347
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High energy costs, lower demand, and adverse currency values prevail


The second quarter of this year took up just where the first quarter left off, with little relief for chemical companies from the effects of the economic slowdown. High energy costs, slowing demand for many chemical products, and a strong dollar in relation to foreign currencies continue to eat into corporate earnings while pushing forecasts of an eventual upturn further into the future.

"Even the experts are looking to the end of 2001 or early 2002 for substantial improvement in the overall external economies."
Of 18 major chemical companies that have reported earnings thus far, just five--Cabot, Cambrex, Lubrizol, Monsanto, and Praxair--had earnings higher than their results in the second quarter of last year. And a mostly different five--Air Products, W.R. Grace, Lubrizol, Praxair, and Stepan--had increases in sales, with all but Grace in single digits.

The prize, thus far, for the largest percentage earnings increase goes to Cabot--a 24% rise to $41.0 million as sales declined 6% to $336.0 million. However, chemicals receive no credit for the increase; that goes to the company's tantalum operations. In chemicals, weaker earnings resulted from a decline in demand for carbon black and fumed silica and an unfavorable foreign currency impact. In the company's tantalum business, however, demand for tantalum powder, wire, and intermediate products was strong, even though the electronics industry is suffering.

On the flip side, the largest earnings decline was at fertilizer producer IMC Global: an 87% dive to $4.2 million. Problems included a plant shutdown, lower volumes, and higher interest expense and natural gas costs.

Companies may be starting to see the benefits of cost cutting. At Rohm and Haas, where earnings continued to fall this quarter by 36% to $48.0 million, Chairman and CEO Rajiv L. Gupta noted that external economic conditions remain challenging, but said the company is beginning to see the benefits of tighter control of internal costs and discretionary spending. "Rohm and Haas has a clear line of sight on how we will achieve a $200 million reduction in fixed costs by October 2002," Gupta said.

The two largest chemical companies--Dow Chemical and DuPont--coincidentally had the same 54% earnings decline for the quarter, and, like Rohm and Haas and many other chemical makers, both are focusing on cost cutting and productivity improvement. At Dow, which had $302.1 million in earnings, Executive Vice President and Chief Financial Officer J. Pedro Reinhard said, "We continue to manage those factors that are within our control to ensure we remain competitively advantaged and well poised for value growth when conditions improve." Reinhard noted the company has some 1,800 projects under way that are focused on both profitability enhancements and revenue growth.

And at DuPont, with $432.0 million in earnings, Chairman and CEO Charles O. (Chad) Holliday Jr. said, "In response to lower levels of business activity, we have taken actions to reduce costs and enrich product mix, and as a result, we expect significant earnings leverage when demand improves." As part of this cost reduction, DuPont had announced in the spring the elimination of 4,000 jobs worldwide. Last week, the company upped the figure to 5,500.

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Chemical earnings
Most firms continue fall in second quarter
Air Products $1,415.9 $132.3 1% –5% 9.3% 9.9%
Albemarle 211.3 14.8 –7 –38 7.0 10.5
Cabot 336.0 41.0 –6 24 12.2 9.2
Cambrex 122.6 14.9 –4 5 12.2 11.1
Crompton 724.0 13.9 –10 –67 1.9 5.2
Cytec Industries 354.0 25.9 –9 –26 7.3 8.9
Dow Chemical 7,244.0 302.1 –5 –54 4.2 8.6
DuPont 6,977.0 432.0 –12 –54 6.2 12.0
H. B. Fuller 328.7 11.9 –6 –33 3.6 5.1
W.R. Grace 450.3 27.3 11 –21 6.1 8.5
IMC Global 506.9 4.2 –4 –87 0.8 6.2
Lubrizol 487.8 32.0 8 7 6.6 6.7
Monsanto 2,011.0 421.0 0 5 20.9 20.0
NL Industries 220.1 24.0 –12 –26 10.9 13.0
PPG Industries 2,164.0 155.0 –5 –24 7.2 9.0
Praxair 1,314.0 126.0 4 3 9.6 9.6
Rohm and Haas 1,408.0 48.0 –14 –36 3.4 4.6
Stepan 182.8 6.2 3 –6 3.4 3.7
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales.

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