Stronger Demand In Fourth Quarter

Early reports of fourth-quarter earnings in the chemical industry suggest that demand for a wide variety of products has improved noticeably, giving executives reason to be optimistic about 2010.

The year-over-year results are almost guaranteed to look good because the last quarter of 2008 was horrible for chemical firms. For example, DuPont earned $402 million for the quarter, compared with a loss of $249 million in 2008.

In a conference call with analysts, DuPont CEO Ellen J. Kullman struck a triumphant note. “We delivered 10% sales growth in the quarter, with volume increases in every region,” she said.

David Begleiter, a research analyst with Deutsche Bank, points out in a report to investors that DuPont’s earnings per share of 44 cents beat consensus expectations by 4 cents and observes that “the upside was driven by better-than-expected volume growth.”

DuPont’s $6.4 billion in sales reflected growth in five of six segments, including a 22% increase in electronic chemicals and a 20% boost in performance materials. Only the safety and protection business saw a decrease in the quarter. The company raised its earnings-per-share guidance for 2010 by 5 cents to $2.15–$2.45.

DuPont also enjoyed strong growth in its agriculture business, selling 25% more seeds than in the fourth quarter of 2008. In contrast, fertilizer maker Mosaic continues to confront low selling prices for potash and phosphate, which took a big bite out of its profits.

Specialty chemical maker Albemarle saw an improvement in sales and a significant rise in quarterly earnings to $62 million from $13 million in 2008. Earnings were powered by increased sales of brominated flame retardants. Meanwhile, Ashland, which acquired Hercules in November 2008, earned $86 million on $2.0 billion in sales in the fourth quarter of 2009.

At industrial gas firms Air Products & Chemicals and Praxair, sales in the quarter were essentially flat compared with last year’s fourth quarter because the companies were forced to lower prices to reflect decreases in energy and raw material costs. But sales volumes are on their way up. Specifically, Air Products saw an increase in demand for tonnage gases and electronics and performance materials. Productivity gains and favorable exchange rates helped Air Products increase quarterly earnings to $252 million from $69 million in 2008. Praxair’s earnings rose 70.0% to $340 million.

The earnings reports also show that the strength of the upturn was not universal. Emerging economies, especially China’s, drove improved volumes, with those of the U.S. and Europe lagging behind. Praxair CEO Stephen F. Angel forecasts that the pattern will continue. “For 2010, we are cautiously optimistic that growth in the U.S. and Europe will continue to improve,” he says, “but we expect the climb to be slow and deliberate.”