C&EN: TODAY'S HEADLINES - EARNINGS CONSTERNATION

WILLIAM STORCK

First-quarter earnings at chemical companies seem to have no direction. Some firms show improvement—sometimes significant—from the same period in 2002. Others have seen earnings fall. For a few, there were no positive results, only losses.

But no matter what direction earnings took, sales at most chemical companies improved nicely. The problem was that the higher sales mostly reflected higher prices due to higher energy and feedstock costs. At many firms, none of the sales improvement passed through to the bottom line.

Dow Chemical was one of the companies that saw earnings rise faster than sales, and the firm’s data put into perspective what was happening in the quarter. Dow’s earnings increased 37.1% to $85 million on a sales increase of 28.2% to $8.1 billion. However, only seven points of the 28% improvement in sales came from increases in volume. The remaining 21 points represented higher prices. At the same time, Dow’s cost of making its products rose 33.8%.

Air Products & Chemicals racked up the second highest sales increase for the quarter—20.2% to $1.6 billion—behind Dow’s improvement, but its earnings slipped 4.8% to $114 million. CEO John P. Jones says: “The slowdown in demand across the basic manufacturing industries is affecting our North American merchant gas and performance polymers volumes. And significantly higher energy and raw material costs are impacting our chemicals segment and, to a lesser extent, gases.”

Two companies, Crompton and Cytec Industries, pulled off large earnings increases on relatively modest sales improvements. Crompton scored earnings of $12 million, up 75% from an admittedly low base last year as sales improved just 0.8% to $650 million. CEO Vincent A. Calarco says, “We benefited from an increase in unit volume, lower operating costs, and favorable foreign currency translation, while higher raw material costs and lower selling prices in certain businesses were partial offsets.”

And Cytec’s earnings were up 69% to $29 million on a 15.4% sales increase to $367 million. David Lilley, the company’s CEO, says, “Our momentum from last year has continued into 2003 in spite of the continuing global economic uncertainty.” But he cautions: “There remains considerable uncertainty in the global economy.”