Positive Earnings Estimates

One year after the financial meltdown, two specialty chemical companies are reporting that sales volumes have increased in the third quarter. The early signals from Lubrizol and Solutia suggest the downturn that gutted chemical revenues may be over, at least for some firms.

At Lubrizol, executives raised the full-year earnings estimate to a range of $6.10 to $6.40 per share, from the estimate of $5.70 to $6.00 per share issued at the end of July. The company did not state which end-markets are responsible for sales growth in the third quarter.

Solutia raised its estimate for 2009 adjusted earnings before interest, taxes, depreciation, and amortization to a range of $340 million to $360 million, from the earlier estimate of $325 million to $350 million. The change was driven by higher volumes in the auto market during July and August, in contrast to the typical third-quarter slowdown. Solutia told investors that profit margins would continue to expand as a result of cost-cutting efforts and the sale of its nylon business in April.

Meanwhile, chemical sales are not as rosy at Monsanto, which told investors that "gross profit for Roundup and other glyphosate-based herbicides is expected to be lower than anticipated." The company did not change its full-year earnings-per-share estimates.

"Recent positive earnings surprises in the [chemical] sector will likely be echoed by other companies as the recovery gains traction," stock analyst Laurence Alexander of Jefferies & Co. wrote in a note to investors. Leading indicators of chemical sector pricing, capacity utilization, and consumer spending, he added, "paint a more positive picture than expected" for the first half of 2010.