Firms Beat Dollar, Price Pressures

A handful of early-reporting chemical firms show that the industry held up well in the first quarter in the face of an unusually strong dollar and a sharp drop in oil and gas prices; both factors put serious downward pressure on how much they could charge for their products.

Dow Chemical, DuPont, Celanese, and Cytec Industries all beat analysts’ earnings expectations for the quarter, while W.R. Grace met predictions. Dow’s sales dropped by more than $2 billion—owing mainly to shrinking prices—compared with the year-ago quarter. Still, demand for the firm’s products was strong across most segments. It raised earnings slightly, to $974 million, and expanded its profit margin to 7.9% from 6.7%.

In a conference call with analysts, Dow CEO Andrew N. Liveris gave credit to the company’s product mix, which he described as nimble and targeted to growth markets rather than commodity-based and subject to volatility. As examples, Liveris pointed to strong growth in China for Dow’s rice herbicide and its household water purifiers.

Dow also benefited from “price stickiness”—when the price of products such as performance plastics declines by less than that of raw materials. But the stickiness works both ways, suggests Charles Neivert, chemicals analyst at the investment bank Cowen & Co. In a note to investors, he pointed out that Dow won’t be able to immediately increase prices when the cost of feedstocks rebounds.

At DuPont, sales were also down for the quarter, due in large part to currency effects, and earnings declined 20.3% to less than $1.2 billion. Still, the company saw strong demand; volumes were up in performance materials, safety and protection, nutrition and health, and industrial biosciences. DuPont’s agriculture business had a tough quarter because farmers globally are planting fewer acres of corn.

For Celanese, the strong dollar was less of a problem because it makes and sells a larger proportion of products in the U.S. than do Dow and DuPont. And that’s where the firm benefited from strong auto industry demand for its engineered polymers. Celanese did see the currency impact on exports, such as to electronics makers in Asia, but it was more than offset by lower raw material costs.

Overall, the mood of chemical executives is upbeat thanks to ongoing cost cutting, corporate restructuring, and rising demand from both industry and consumers. “We expect performance in the remainder of the year to build on this momentum, driven by new product sales and benefits from our accelerated operational redesign,” DuPont CEO Ellen J. Kullman told investors.

But strong results for the second quarter cannot be taken for granted, Liveris warned. “The growth is not like peanut butter—it’s not spread out uniformly.”