A Mixed Earnings Picture

Early third-quarter earnings reports show that the U.S. chemical industry continues to benefit from lower costs while it looks for signals of an economic recovery. Sales and earnings were generally significantly lower than in the year-ago quarter, but some firms bested analysts' expectations.

DuPont posted earnings of $409 million, down 20.3% from 2008, but the company's earnings per share of 45 cents beat the analyst consensus by 12 cents. DuPont reported 12% lower sales volumes for the quarter but said weak sales were countered by lower fixed and variable costs.

In a conference call with analysts, DuPont CEO Ellen J. Kullman noted some positive signs in the results, including business units that saw sales rise from the second quarter. "Our coatings and polymer products experienced strong demand on increases in motor vehicle production. Our engineering polymer products experienced an added boost from restocking demands across automotive supply chains," she said.

Kullman said the company is seeing strong demand for titanium dioxide, which she considers an early indicator of recovery for chemicals. Another positive note was DuPont's 7% increase in sales to China compared with last year.

For DuPont's agriculture and nutrition business, however, sales in the third quarter were down 5% from last year. The business had seen large gains in recent quarters, and Kullman blamed the slide on poor planting weather and lower corn acreage in South America. Meanwhile, fertilizer maker Mosaic saw sales and earnings plummet for the second quarter in a row. The company said farmers have been spooked by volatile grain and oilseed prices.

Specialty chemical firm Cytec Industries surpassed analyst expectations by returning earnings per share of 57 cents, compared with an expected 30 cents. The company reported $740 million in sales and $28 million in earnings. Although these results are down from last year's third quarter, they represent a sequential gain from the second quarter, when it booked $685 million in revenues and a net loss of $1 million. In addition to cost cuts, Cytec reported, its results benefited from "modest improvement in selling volumes" in its coating resins business.

H.B. Fuller and Stepan both reported increased earnings, though sales were lower than in the third quarter of 2008. The firms also saw sequential improvement in both sales and earnings from the second quarter. H.B. Fuller said increased volumes contributed to the 5% bump in revenue from last quarter, while Stepan attributed its performance to lower raw material costs, cost-control initiatives, and its strong laundry and personal care business.

Chemical executives are preparing for a long, slow recovery, says Jefferies & Co. chemical analyst Laurence Alexander. In a note to investors, Alexander writes that the earnings reports have common themes, including "tailwinds from raw materials and cost cutting, strength in Asia (particularly China), and sequential improvements in auto and industrial end market demand."