Chemical Earnings Continue To Slide

FIRST-QUARTER 2009 chemical earnings are shaping up to be at least as bad as they were in the fourth quarter of 2008. But the industry was prepared this time. It continued to lower investor expectations and cut costs as it sank into the trough of the recession.

At DuPont, cost-cutting helped the firm earn $489 million for the quarter, compared with a staggering loss of $249 million in the fourth quarter of 2008. Earnings declined 59.1% compared with last year's first quarter.

In a conference call with analysts, DuPont CEO Ellen Kullman said early cost-cutting "enabled us to withstand further deteriorating economic conditions during the quarter to deliver results in the range we expected." DuPont said global declines in consumer spending, construction, and motor vehicle production were to blame for lower revenues.

DuPont has promised more belt-tightening, saying it will cut additional contractor positions and trim work schedules to save $200 million. The company knocked another $200 million off its 2009 capital-spending budget. And it is looking for a further $70 million in savings in 2009.

Cytec Industries reported a plunge in earnings of 94.3% compared with last year's first quarter. Its surface specialties and basic chemicals businesses were especially hard hit. Along with its financial results, the company announced cuts of at least 120 full-time positions plus reductions in benefits. The firm previously cut 600 jobs.

Industrial gas supplier Air Products & Chemicals said its cost-cutting will benefit future earnings. First-quarter sales slipped by $241 million compared with the fourth quarter of 2008. On a year-to-year basis, the company's earnings dropped 34.4% due to lower sales of merchant gases and electronics and performance materials.

Chemical stock analyst Laurence Alexander of Jefferies & Co. places the reports in context. "This was more like expected bad news," he says. "Air Products and DuPont both slightly beat earnings estimates. Cytec was a small miss." However, Alexander cautions that cost-cutting may slow recovery, especially if companies neglect to maintain their facilities.

On the agriculture front, results were mixed. DuPont's agriculture earnings grew 8% compared with last year, primarily due to seed volume gains. But fertilizer makers Mosaic and Terra Industries, both recent highfliers, reported weak demand. The two firms said farmers are concerned about lower grain prices and a buildup of inventories.

Coatings maker PPG Industries saw sales decline by $405 million since last quarter. Compared with last year, the company's earnings sank 83.1%.

PPG and DuPont both reported that orders stabilized in March, suggesting that demand may return. But DuPont and Air Products both reduced their earnings estimates for full-year 2009 because of concerns that the recovery will be much slower than originally anticipated.