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Volume 86 Issue 17 | p. 13 | News of The Week
Issue Date: April 28, 2008

Chemical Makers Enjoy Growth

Companies raise prices to preserve profit margins in the first quarter
Department: Business

First-quarter company earnings show that the chemical industry is making lemonade out of the high energy costs and low U.S. demand that are characterizing 2008. Air Products & Chemicals, Cytec Industries, DuPont, and Mosaic all reported large increases in earnings and a boost in profit margins.

While economists have been itemizing the causes and effects of the U.S. economic slowdown, many chemical companies raised prices and more than made up for higher energy and raw material costs. One was Cytec, which saw earnings growth of 40.8% over last year's first quarter on an increase in sales of 12.7%.

Not all firms were winners. Dow Chemical's first-quarter earnings decreased 3.3%. The drop wasn't as bad as the previous quarter's 20.0% earnings fall, however, and CEO Andrew N. Liveris attributes the relative improvement to "broad-based pricing initiatives and growth in our performance businesses." Dow's sales rose 19.2%, thanks in part to growth in its AgroSciences business.

H.B. Fuller says it attempted to offset the economic slowdown with cost cutting, but the company felt the squeeze on earnings—down 2.7% over last year's quarter—due to lower demand and high energy costs.

In contrast, high energy costs worked to Air Products' advantage. Its earnings benefited from the rise in natural gas prices, according to Chief Financial Officer Paul H. Huck, who explains that "industrial gases are used to help improve the efficiency of processes on the energy side" and, in some cases, can substitute for other fuels.

The collapse of the U.S. housing and auto markets has chemical companies looking overseas for sales. Industrial chemical maker Celanese says it is busy plowing profits back into China, where it has seen increased sales. For DuPont, continued strength in Brazil, China, and India has more than offset flat sales in U.S. markets.

Companies with significant overseas business enjoyed the added benefit of the falling U.S. dollar. Sigma-Aldrich, for example, saw a 7.6% revenue boost from the weak dollar alone, helping it achieve a new quarterly sales high of $570 million, versus $496 million in the year-ago period.

Emerging markets gave DuPont strong growth in sales and earnings for the second quarter in a row. Compared with the year-ago quarter, sales increased 9.3% to $8.58 billion and earnings were up 19.5% to $1.19 billion. Like Dow, DuPont says rising prices in the commodities markets have increased demand for its agricultural products.

At fertilizer maker Mosaic, huge increases in sales of phosphates and potash fertilizers resulted in an overall 67.9% jump in sales. CEO Jim Prokopanko links the rise in demand to the "exceptional agricultural environment," which is due in part to the demand for biofuels.

 
Chemical & Engineering News
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