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Chemical Earnings Continue To Rise

Companies in many cases still struggle to overcome effects of higher costs

by William Storck
July 31, 2006 | APPEARED IN VOLUME 84, ISSUE 31

Although chemical companies continue to complain about high energy and feedstock costs, early second-quarter financial results from 11 major firms show there is still earnings growth in the industry.

Only two of the companies reporting thus far, Dow Chemical and Stepan, showed declines in earnings. Industry leader Dow reported a 19.1% earnings drop to $1.0 billion, even as it posted record sales of $12.5 billion, a 9.2% increase over those of second-quarter 2005.

Sales rose in all of Dow's businesses except agricultural chemicals, which fell 7% from the prior-year quarter. But despite increases in sales in the plastics and chemicals segments, price increases could not keep up with higher costs. As a result, pretax earnings were lower for all segments.

Geoffery E. Merszei, Dow's chief financial officer, says, "Given the challenges of the first half of the year, we believe it will be difficult to meet our earlier expectations that earnings in 2006 will be better than in 2005."

Stepan's second-quarter earnings of $3.1 million were just half of what they were in the 2005 period. The decline was attributable to a $2.6 million drop in gross profit in the firm's polymer segment, which was only partially offset by a $1.4 million improvement in its surfactants business.

Despite the continuing worries about costs, the remaining nine companies did well, and all but DuPont posted double-digit earnings increases. DuPont's earnings were up 4.4% to $944 million, while sales declined a modest 0.9% to $7.4 billion. Improved local pricing and higher volumes offset a significant portion of higher raw material costs, the company says.

The largest earnings gain was a 49.3% increase at Albemarle to $43.3 million on a 13.1% sales increase to $569 million. This was also the largest percentage sales increase among the companies that reported. According to CEO Mark C. Rohr, all three Albemarle business units-polymer additives, catalysts, and fine chemicals-showed improved earnings and margins compared with the same period last year.

Industrial gas companies did well in the quarter. Praxair's earnings rose 22.3% to $247 million on an 8.2% increase in sales to $2.1 billion. "Though some macroeconomic indicators point to a slowdown, we have not seen any significant decline in demand from our customers," CEO Dennis H. Reilley says.

Air Products & Chemicals' earnings increased 14.5% to $210 million on an 11.6% improvement in sales to $2.3 billion. "This performance was powered by strong volumes across our global energy and process industries, electronics, and merchant gas businesses, demonstrating the strength of our businesses and market positions to continue to deliver profitable growth and higher returns," CEO John P. Jones III says.

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