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Chemical firms Are Prospering

Most firms report double-digit growth in earnings in the second quarter

by William Storck
July 30, 2007 | A version of this story appeared in Volume 85, Issue 31

THE SECOND QUARTER OF 2007 produced good earnings results at most of the 15 chemical companies that have reported. The score for the quarter was 12 companies up, three down. And the only single-digit increases were at Dow Chemical and DuPont.

Dow's earnings for the quarter increased just 1.6% over the comparable period last year to $1.04 billion on a 6.0% rise in sales to $13.3 billion. As in the past, increases in feedstock and energy costs held the company back.

"During the quarter, our global strength, diverse business portfolio, focus on price/volume management, and commitment to joint ventures combined to overcome an unprecedented rise in feedstock and energy costs," Dow CEO Andrew N. Liveris says. These costs increased more than $550 million over second-quarter 2006 and $700 million over first-quarter 2007, the largest quarter-to-quarter increase on record, according to the firm.

Credit: Peter Cutts
Credit: Peter Cutts

DuPont's earnings increased 3.0% to $972.0 million as sales rose 5.8% to $7.88 billion. Security analysts had expected results from the company's agriculture and nutrition unit to be strong due to increased planting of corn for use as ethanol feedstock. This unit, however, saw pretax operating income fall 0.5% to $428.0 million while posting a 7.2% increase in sales.

The company that benefited from the need for more corn was Terra Industries. The fertilizer producer's sales were up 32.5%, the largest percentage increase among the reporting firms, to $693.8 million. Earnings, moreover, jumped almost 14-fold from the second quarter of last year to $69.4 million. And Terra's profit margin of 10.0% in the second quarter was 10 times what it was in the comparable 2006 period. CEO Michael L. Bennett says, "Demand was strong throughout the period as U.S. farmers planted a reported 93 million acres of corn this spring."

After Terra, the second-quarter earnings increases drop to still-admirable levels at H.B. Fuller and W.R. Grace. Fuller's earnings rose 46.0% to $27.3 million on a skimpy 0.5% rise in sales to $373.5 million. "Once again, we have demonstrated our ability to navigate through a difficult macroeconomic environment and accelerate the profitability of the business," CEO Michele Volpi comments.

And Grace's earnings were up 41.9% to $48.4 million as sales rose 11.5% to $812.8 million. "We have been able to capitalize on high-growth economies globally and continue to be successful in advancing our growth initiatives," says Fred Festa, the company's CEO. "The shift of our business base to economies outside of the U.S. has been beneficial during this time of low housing starts in the North American market."

Industrial gases companies continued their march upward. Air Products & Chemicals' earnings improved by 38.0% to $284.9 million on sales of $2.60 billion, a 15.6% rise. CEO John P. Jones III credits strong demand for gases and materials in energy and electronics markets. Praxair's earnings rose 17.8% to $291.0 million, while sales increased 12.3% to $2.33 billion. CEO Stephen F. Angel says the outlook for the company's products and technologies "continues to brighten."

Just three chemical companies???Cabot, PPG Industries, and Rohm and Haas???posted earnings declines in the quarter. At Rohm and Haas, earnings fell 16.1% to $161.0 million on a 5.2% rise in sales to $2.19 billion. PPG saw earnings decline despite garnering the highest sales figure of any quarter in its history. Sales rose 12.4% to $3.17 billion, but earnings slipped 6.3% to $255.0 million. And Cabot's earnings were down 14.8% to $23.0 million as sales fell 2.6% to $649.0 million.


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