Issue Date: April 30, 2012
An Early Spring Rescues Earnings
The first quarter is normally a seasonal slow time for U.S. chemical producers, but mild weather and springlike temperatures boosted sales in the agriculture, coatings, and construction sectors, helping improve earnings at many firms.
Still, the news was not all positive. European demand continues to flounder, notwithstanding signs of strength in Germany’s economy. And some companies say customer destocking, which started during last year’s fourth quarter, continued early in this year.
“Weather-related first-quarter strength in U.S. agricultural and coatings markets is a bonus for multi-industry companies like DuPont and Dow that continue to see weak offshore demand,” explained Donald D. Carson, chemicals analyst at Susquehanna Financial Group, in a note to investors. Some portion of the sales was ahead of schedule and would have occurred in the second quarter, but Carson argued that the good results reflect more than just a seasonal “pull forward.”
At DuPont, agriculture division sales were up 16% compared with last year’s first quarter, rising to $4.1 billion. Volume gains accounted for half of the increase; the rest was due to price hikes. Seeds and insect control products both contributed to the growth. In contrast, DuPont’s sales volumes were down significantly for electronics chemicals, performance chemicals, and safety and protection.
In all, DuPont saw earnings edge up 6.2% to $1.5 billion from the year-ago quarter on sales of $11.2 billion. Earnings from DuPont’s May 2011 acquisition of Danisco and higher prices overall more than made up for lower volumes and higher raw material costs.
At Dow Chemical, earnings sank 25.0% compared with last year’s first quarter, while sales remained close to flat. The company benefited from the strength of its agriculture business, which saw sales rise 14% to $1.8 billion. Earnings from seed and crop protection chemicals were up 11% from last year.
Unlike at DuPont, some Dow businesses, notably performance materials and performance plastics, were not able to increase pricing to make up for soft demand. Earnings from its equity investments, primarily in Dow Corning, were off by $129 million compared with last year’s quarter.
But in a conference call with investors, Dow CEO Andrew N. Liveris sounded upbeat and gave evidence that demand was strengthening. He said operating rates jumped 12% to 84% from the fourth quarter of 2011. And sales in all major geographies were strong in March compared with February—up 15% in the U.S., 14% in Germany, and 20% in China.
Coatings firm PPG Industries raised earnings 22.4% to $279 million compared with last year’s first quarter. In a conference call with analysts, CEO Charles E. Bunch said that although a portion of the increase was due to mild weather, which favored architectural coating sales, markets such as aerospace and auto manufacturing were also strong in the U.S. “We have further growth opportunities as demand in some of our larger end-use markets such as automotive and architectural coatings continues to recover,” Bunch told analysts.
Results at W.R. Grace showed the strength of the rebounding construction markets. The firm’s construction products segment saw a 10% increase in sales, with almost 8% of the change due to higher volumes. Sales in emerging markets were up 24% on strength in Latin America, the Middle East, and Asia. In North America, sales were up 6%, but Western Europe was still in decline.
Executives at Ashland continue to bask in the warm glow of last year’s acquisition of ISP, which helped the firm’s quarterly earnings grow 53.2% compared with last year. “Ashland Specialty Ingredients achieved another strong quarter, with double-digit sales and earnings increases and good sales growth in all regions of the world,” Ashland CEO James J. O’Brien told investors. Within the segment, the strongest results came in the energy, construction, and specialty performance businesses.
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