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August 4, 2003
Volume 81, Number 31
CENEAR 81 31 p. 7
ISSN 0009-2347


EARNINGS

NO CLEAR DIRECTION
Second-quarter results at chemical firms are up almost as often as they are down

WILLIAM STORCK

When there is no clear trend among companies, the word that pops into the minds of financial reporters and security analysts is "mixed"--a term that certainly applies to the chemical industry in the second quarter. Of 15 large chemical companies reporting by C&EN press time, six showed increases in earnings from continuing operations, excluding unusual items; eight had lower earnings; and one, Praxair, had no change compared with the same period last year.

Even the two largest U.S. chemical companies went in different directions. Dow Chemical's earnings surged 64.4% to $393 million, while DuPont's earnings fell 12.4% to $623 million. Dow's increase came on a 13.5% rise in sales to $8.24 billion, whereas DuPont's earnings declined despite a sales increase of 10% to $7.37 billion.

Both companies noted higher costs for the period, but Dow's costs for the products it sold--plus selling, administration, and general expenses--rose in line with the sales increase. Growth of these costs at DuPont outstripped its sales increase by almost five percentage points.

Dow had the highest percentage earnings gain of the companies surveyed, with the second largest seen at Cabot. Cabot's earnings, excluding one-time items, rose 25.8% to $29.3 million on a 20% sales increase to $468 million. However, the company is
not yet out of the woods. Cabot CEO Kennett F. Burnes says, "Competition in the carbon black market is intense, and we are experiencing downward price pressure at the same time as our raw material costs are increasing."

Two other companies with double-digit earnings increases were Cytec Industries and FMC Corp. Cytec's earnings increased 18.7% to $25.4 million as sales rose 6.8% to $375 million. The company had gains in pretax profits in all of its business segments, led by growth in specialty materials and building block intermediates of 19% and 12%, respectively.

FMC's earnings increased 13% to $21.7 million on 5.7% sales growth to $510 million.

W.R. Grace had the largest percentage decline of the 15 companies, but its 69.3% drop includes a number of unusual items that it only reports on a pretax basis. Earnings, including the one-time items, totaled just $6.5 million on sales of $503 million. Sales were up 6.7% over the same quarter of last year. The company says operating results continued to be adversely affected by economic weakness and by higher manufacturing and energy costs.

Solutia's earnings declined by $25 million in the quarter to give the company a $14 million loss, while sales increased 4.4% to $611 million. Solutia CEO John Hunter says, "Our earnings continued to be adversely impacted by persistently elevated raw material and energy costs and significant overcapacity in the marketplace."

SECOND QUARTER
Slightly more earnings declines than increases at major firms

SALES EARNINGSa CHANGE FROM 2002 PROFIT MARGINb

($ MILLIONS) SALES EARNINGS 2003 2002
Air Products $1,629.9 $123.2 18.6% –12.8% 7.6% 10.3%
Cabot 468.0 29.3 20.0 25.8 6.3 6.0
Cytec Industries 374.9 25.4 6.8 18.7 6.8 6.1
Dow Chemical 8,242.0 393.0 13.5 64.4 4.8 3.3
DuPont 7,369.0 623.0 10.0 –12.4 8.5 10.6
Eastman Chemical 1,481.0 47.0 6.2 6.8 3.2 3.2
Ferro 416.2 6.7 1.9 –43.2 1.6 2.9
FMC Corp. 510.0 21.7 5.7 13.0 4.3 4.0
Great Lakes Chemical 416.7 15.1 2.0 –35.2 3.6 5.7
W.R. Gracec 503.4 6.5 6.7 –69.3 1.3 4.5
Lubrizol 514.3 29.4 1.3 –14.8 5.7 6.8
PPG Industries 2,304.0 159.0 8.0 6.0 6.9 7.0
Praxair 1,401.0 150.0 7.2 0.0 10.7 11.5
Rohm and Haas 1,570.0 91.0 7.8 –11.7 5.8 7.1
Solutia 611.0 –14.0 4.4 nm def 1.9
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales. c Includes unusual charges. def = deficit. nm = not meaningful.



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