Earnings up Again at Chemical Firms

Price increases help improve profitability for chemical makers

The earnings surge that began a year ago continued in the first quarter of 2005 for most of 13 large U.S. chemical makers. Despite weakness in some parts of the economy--such as the automotive sector--chemical makers had little trouble passing along higher energy and raw material prices and increasing their profits.

A decent economy helped. Gross domestic product percolated along at a seasonally adjusted rate of 3.1% during the first quarter, according to the latest government estimate. GDP grew 4.5% in the first quarter a year ago, so the economy is slowing.

A weak U.S. dollar helped, too. Sales booked overseas were more valuable in U.S. dollars because of the effect of currency translations.

For Dow Chemical, "fundamentals remain solid across all operating segments and geographic areas," Chief Financial Officer J. Pedro Reinhard says. "This was an outstanding quarter."

Reinhard attributes the results to "significant price improvements, supported by solid volumes, which enabled further margin recovery across virtually all of Dow's businesses, despite an increase of more than $1 billion, or 30%, in purchased feedstock and energy costs."

DuPont's first-quarter results, with earnings up less than 1%, are better than they first look, because last year's results include the businesses sold to Koch Industries. DuPont CEO Charles O. Holliday Jr. says, "We are confident we will grow earnings and cash flow again this year."

But many chemical makers are cautious, although they expect the remainder of the year will continue strong. DuPont, for instance, notes that lower North American car production is affecting its coatings businesses.

Rohm and Haas CEO Raj L. Gupta is concerned because high oil prices and energy costs--as well as rising interest rates--are having an effect on global demand, and some markets, such as building and construction, are showing signs of slower growth. Although that means less demand for some of the company's products, favorable currency translations have helped to offset the effect.

Ferro notes that its sales were affected by continued weakness in the electronic materials business, and that it discerns softness in the durable goods markets, including the North American automotive and appliance sectors.

In an earnings telephone call with analysts, Air Products & Chemicals Chief Financial Officer Paul E. Huck admitted that the firm expects its sales to electronics makers to be flat because business with liquid-crystal display makers is not ramping up as quickly as expected. But overall, Air Products had a very good quarter.