Costs Still Pinch Chemical Firms

Early-reporting U.S. chemical companies are mostly showing strong first-quarter improvement over the same period in 2005, with the notable exceptions of Dow Chemical and DuPont.

Among major chemical makers that have reported, percentage changes in earnings growth are all in the double-digit range, but for the two largest U.S. chemical firms, those changes are declines. Earnings are from continuing operations, excluding nonrecurring and extraordinary items.

Dow Chemical, the largest of the firms, saw earnings decline 10.6% to $1.21 billion as sales increased 2.9% to $12.0 billion. Compared with the same period in 2005, the company says, prices edged up 2%, but this was not enough to counter an increase in feedstock costs of more than $800 million. And volume, which rose 1%, was dampened by slack demand across most businesses in the U.S. as customers delayed purchases in anticipation of lower prices.

Earnings at number two DuPont fell 10.3% to $867 million, and sales declined 0.5% to $7.39 billion. The company says prices were 3% higher than in the 2005 quarter, offsetting about 75% of the impact of the approximately $350 million increase in energy and raw material costs.

The largest percentage earnings increases were seen, for the most part, among the smaller companies. At the smallest of them, Stepan, earnings rose 44.8% to $4.2 million on a 9.6% sales increase to $290 million.

Most of Stepan's improvement in gross profit, however, came from its polymers unit.

Larger firms also did well. Specialty chemical producer Rohm and Haas scored a 30.2% increase in earnings compared with the first quarter of 2005 to $207 million on a 3.0% increase in sales to $2.08 billion. The company's earnings include charges from stock-based compensation adjustments.

Rohm and Haas saw good demand growth in its high-volume chemical businesses, with plastics additives sales up 13%, process chemicals up 10%, and architectural and functional coatings up 6%.

"We have been successful in executing portfolio management strategies to shed underperforming business while maintaining our focus on selling technically advanced, higher growth, and higher margin product lines," says CEO Raj L. Gupta.

Industrial gas producers Air Products & Chemicals and Praxair also did well. Air Products increased earnings by 21.4% to $204 million, while sales grew 15.7% to $2.32 billion. The company says the earnings growth came from improved results in all business segments, driven by strong sales in gases and equipment and improved pricing in chemicals.

At Praxair, where earnings rose 19.0% to $225 million on 10.9% sales growth to $2.03 billion, CEO Dennis H. Reilley says, "Our electronics business led sales higher with growth of 35%, followed by aerospace, metals, and manufacturing, which showed high double-digit growth."