Katrina's Impact

Chemical producers and analysts are beginning to assess Hurricane Katrina's financial impact, and in most cases the news is not good. Earnings will be pinched in the third quarter, they say, and many firms are now maneuvering to pass along energy and raw material cost increases to customers as quickly as possible.

According to Robert Shrouds, DuPont corporate economist, "Record-high energy prices, which have been further exacerbated by Hurricane Katrina, will be a factor in the global energy outlook for the foreseeable future." Diane Gulyas, DuPont's chief marketing and sales officer, put customers on notice that the company will raise prices across the board in light of rapidly increasing energy and feedstock prices. Other firms hiking prices on a broad range of products include Albemarle, Eastman Chemical, Celanese, and Dow Chemical.

Kevin W. McCarthy, a Banc of America Securities stock analyst, has shaved his earnings estimates for firms such as Dow, DuPont, PPG Industries, Rohm and Haas, Eastman, Nova Chemicals, Westlake Chemical, Albemarle, and Georgia Gulf. He cites "surging costs for energy and raw materials."

The surge is likely to have an even greater effect on chemical firms' earnings than the forced idling of facilities. Dow lost revenue because of the storm. However, CEO Andrew Liveris says, high oil and natural gas costs, exacerbated by Katrina, pose a severe long-term threat to Dow and the entire U.S. chemical industry. "We have no choice but to ask our customers to pay more for our products," he says.

Others are under pressure, too. Hercules, for instance, lost some production time in its Mississippi paper chemical operations because of the storm. But Katrina has exacerbated raw material, utility, and transportation costs across all Hercules' businesses, leading the firm to predict a 5-cent-per-share cut in earnings for the balance of the year.