Issue Date: August 3, 2015
Strong Dollar Hurts Chemical Sales But Profits Stable In Second Quarter
U.S. chemical company executives had plenty to complain about in the second quarter. Of early-reporting firms, all but one—Eastman Chemical—reported lower sales compared with last year’s quarter.
The minus signs were due to the effects of a strong dollar, weak agriculture markets, and lower prices for some products—the latter a side effect of cheap raw material and energy costs. Still, demand for performance materials, plus past cost-cutting efforts, helped most firms preserve or even grow earnings.
At Dow Chemical, sales fell more than 13% to $12.9 billion while earnings rose 19.1% to reach almost $1.1 billion. Analysts acknowledged that the company performed better than expected, yet they curbed their enthusiasm.
“Weak crop prices and a sluggish end market have limited agriculture demand,” wrote Laurence Alexander of investment bank Jefferies in an investor note. Indeed, Dow’s agriculture segment saw volumes decrease 2% and prices sink 6%. “Strength in the construction, transportation, and consumer goods end markets was offset by broad-based weakness in most other industrial end markets,” Alexander added.
Although revenues fell, Dow enjoyed strong demand for performance plastics, where volumes increased by 9% compared with the prior year’s quarter, and for performance materials and chemicals, which grew by 4%. In a conference call with analysts, Dow CEO Andrew N. Liveris said U.S. consumers helped drive demand; he mused they had more cash on hand because of low gas prices. In China, rising auto manufacturing and spending on infrastructure such as water treatment facilities boosted sales.
Agriculture more severely impacted results at DuPont, where the segment’s earnings were 7% lower than last year because of reduced sales of DuPont’s soybeans, lower crop protection volumes, and reductions in corn acreage around the world. Performance materials were a bright spot; earnings for the segment grew 3%.
DuPont’s results for the quarter included its performance chemicals business, which was spun off as a separate company, Chemours, on July 1. The business’s operating earnings sank 55% because of lower prices for titanium dioxide and negative currency effects. Overall, DuPont saw earnings erode by 3.8% to just more than $1 billion on a sales drop of 11.4%.
At Eastman, sales and earnings were up compared with last year’s second quarter because of acquisitions, primarily the one involving amines specialist Taminco. But sales and earnings in Eastman’s legacy acetate tow and acetyl chemical businesses dropped.
Currency headwinds pinched results at Huntsman Corp., but overall the firm saw earnings grow nearly 7% to $155 million even as sales shrank by 8.3%. Again, it was performance products and advanced materials to the rescue. Earnings in the two Huntsman segments grew by a combined 20%.
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