Volume 89 Issue 19 | pp. 26-29
Issue Date: May 9, 2011

Top 50 U.S. Chemical Producers

With the recession behind it, U.S. chemical industry girds for growth
Department: Business | Collection: Economy
Keywords: Top 50, market capitalization, mergers and acquisitions
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A worker monitors operations at Eastman Chemical’s Kingsport, Tenn., complex.
Credit: Eastman Chemical
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WATCHFUL EYE
A worker monitors operations at Eastman Chemical’s Kingsport, Tenn., complex.
Credit: Eastman Chemical

The signs are everywhere that the U.S. chemical industry is poised for expansion.

Prices and sales volumes, decimated by the Great Recession, have both posted sharp increases. Profits have come roaring back. Chemical company stock prices are up. And firms are now focused on long-term growth: They are starting to take the cash they hoarded during the recession and redeploy it in expansions and acquisitions.

According to the latest edition of C&EN’s survey, the combined revenues of the Top 50 U.S. chemical companies jumped 19.4% in 2010, hitting $290.8 billion. These results are far better than those posted in 2009, but the industry has a long way to go to make a full recovery. In 2008, the Top 50 firms posted combined revenues of $319.6 billion.

Of the 50 firms surveyed, 41 saw their sales increase. Topping the ranking again, Dow Chemical posted a 19.6% increase in sales to $53.7 billion. Of the top five firms, just PPG Industries posted an increase in revenues of less than 10%.

Only eight companies saw chemical sales fall. Cytec Industries, W.R. Grace, ISP, Arch Chemicals, and Sigma-Aldrich posted modest declines of less than 6%. Sigma-Aldrich’s results, however, are not a matter of bad performance: C&EN considers the firm’s sales resulting from its own manufacturing, rather than its distribution of products made by other companies. Last year, Sigma-Aldrich made 65% of its products; this year, it produced only 60%.

And there is a reasonable explanation for each of the firms that posted sharper declines. Sunoco’s chemical sales declined by 32.6%, and its ranking dropped from 34 to 44. However, last year the company sold its polypropylene business to Brazil’s Braskem.

The two outliers, fertilizer maker Mosaic and crop protection chemicals producer Monsanto, posted sales declines of 34.4% and 34.7%, respectively. Both firms, however, make agricultural chemicals and have fiscal years that ended in the middle of 2010. Thus the crash of the agricultural sector in 2009 skewed their results.

On top of that, Monsanto’s chemical business has a structural problem. Some 70% of its sales come from the glyphosate herbicide Roundup, which has come off patent. Generic glyphosate, much of it produced offshore, is flooding the market. This, the company admits in its annual report, “has caused increased competitive pressure in the market and a decline in the business.”

Industry profitability recovered fully in 2010, C&EN’s survey shows. The combined operating income for the 43 firms that report year-over-year comparable earnings rose 43.0% in 2010, hitting $33.5 billion and eclipsing the record posted by the Top 50 in 2007. Profits declined at just five companies, and only Monsanto posted a loss.

A few companies fell off the list this year. Fertilizer maker Terra Industries was acquired by CF Industries. This deal is also a big reason why CF’s sales rose by 52.0% and its ranking climbed from 23 in last year’s survey to 20 this year.

Hexion Specialty Chemicals and Momentive Performance Materials, both owned by the private equity firm Apollo Management, merged last year and filed for an initial public offering (IPO) of stock late last month. The new firm, Momentive Performance Materials Holdings, replaced the two companies at number nine in the ranking.

Arizona Chemical and SK Capital both dropped off the ranking this year. Documents filed for Arizona’s planned IPO provided figures for last year’s number 49 ranking. However, it canceled the offering when its owner, Rhône Capital, sold a controlling interest to another private equity firm, American Securities. SK Capital, which owns Aristech Acrylics and the nylon maker Ascend Performance Materials, didn’t report results for 2010. SK’s website, though, says its revenues “exceed $2 billion.”

Several other companies would probably have enough chemical sales to make the ranking but don’t publicly disclose results. They include Koch Industries, Procter & Gamble, Baker Hughes, and 3M.

Besides Momentive, four new firms made the C&EN ranking. Styron, the former Dow styrenic polymers unit, joins at number 15. The firm, which is soon to be known as Trinseo, is owned by Bain Capital and is a possible IPO candidate.

After a long absence from the C&EN ranking, Goodyear Tire & Rubber returns at number 43 because it is once again breaking out chemical sales. Coal tar chemical giant Koppers had been stalking the list for years. It finally has enough chemical sales to make it at number 48. Titanium dioxide producer Tronox, which is emerging from bankruptcy, eased into the last spot on the list.

On the stock market, chemical companies had another good year in 2010. The combined market capitalization of the 33 publicly listed companies jumped 34.9% over the course of 2010. At the end of the year, investors had a total of $268.2 billion invested in these companies. Nevertheless, the gains weren’t quite as strong as they were in 2009, when market capitalization rose by 65%.

Last year’s market capitalization leader, Dow, posted only a 25.4% increase in value and was eclipsed by DuPont. The Wilmington, Del., firm’s 50.4% increase, to a value of $45.8 billion, allowed it to regain the top spot.

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DuPont had a banner year in 2010. In addition to a strong jump in revenue, it had an 85.0% gain in operating profits, to $4.6 billion. And just after the year ended, DuPont signed an agreement to buy Denmark’s Danisco for $6.3 billion, a move meant to firmly entrench industrial biotechnology in its chemical mix. “We will look back on 2010 as the year we benefited from recovery, created our own momentum, and emerged as a stronger, well-positioned company,” DuPont Chief Executive Officer Ellen J. Kullman said at a recent analyst meeting.

DuPont isn’t alone in making large chemical acquisitions. A few deals have been signed that will make a mark on future rankings. Solvay, number 23 on the list of foreign firms, is buying number 22, Rhodia. The U.K.’s Ineos is taking over its Ineos Nova styrenics joint venture, number 23 in the U.S. ranking.

Berkshire Hathaway is buying Lubrizol, which is currently number 14. It isn’t difficult to understand why Berkshire CEO Warren Buffett was interested in the company. Lubrizol’s profit margins are the highest among surveyed firms that aren’t in the perennially profitable industrial gas business or the currently hot fertilizer sector.

Mergers and acquisitions (M&A) activity will remain vibrant in the near term, says Christopher D. Cerimele, head of the chemicals practice at the investment banking firm Houlihan Lokey. “There is a confluence of things that are encouraging M&A right now,” he says. One is that financing markets have come back to life after the credit crunch.

Another factor is the improving economy. “People have more confidence in their own businesses,” Cerimele says. “One of the things that hurt M&A activity over the past two to three years was that there was so much uncertainty.”

In addition, after staying conservative during the downturn, companies have a lot of cash on their balance sheets now that business has turned around. Instead of clamoring for special dividends and stock buybacks, Cerimele points out, institutional investors that own chemical stocks are encouraging companies to invest in growth. This means more acquisitions and production capacity increases.

Finally, there is pent-up demand because both private equity firms and chemical makers that wanted to buy coveted operations or divest unwanted ones haven’t had the opportunity to do so for several years. Such an environment is conducive to transactions involving midsized chemical businesses. The sale of Cytec Industries’ building-block chemicals unit to H.I.G. Capital is an example. “There is a whole population of companies that held off selling in the past few years and are reconsidering their options in the currently strong M&A environment,” Cerimele says.

Only time will tell whether any of those transactions are big enough to reshuffle the U.S. Top 50 next year. But the push toward growth will likely have an impact on the chemical industry for several years to come.

Methodology: Compiling The 50

C&EN ranks U.S. chemical producers by sales of chemicals and allied products except pharmaceuticals. Ranking the companies by chemical sales is the only way that privately held companies and some diversified producers can be included.

C&EN also provides a ranking of U.S. firms based on market capitalization. These are 33 companies that have had listings on major U.S. stock exchanges during a comparable year-over-year period and that generate a majority of their revenues via chemical manufacturing. Because companies don't necessarily report chemical and nonchemical sales separately, nonchemical products often creep in. For instance, DuPont's agricultural and nutrition segment includes sales of seeds and agrochemicals. Monsanto, on the other hand, reports seeds and agrochemicals separately.

C&EN does not normally restate prior-year results other than to update foreign company results for current exchange rates or, occasionally, for changes in accounting procedures that otherwise would prevent year-over-year company comparisons. Neither does C&EN routinely restate prior-year rankings.

In the ranking of foreign-owned companies, C&EN uses sales administered by the firms' U.S. headquarters. These figures are as close to U.S. sales as possible, but companies don't post regional sales consistently. For example, Solvay provides sales for the U.S., whereas BASF reports them for North America. A global ranking of chemical producers is scheduled to appear in the July 25 issue of C&EN.

 
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