Issue Date: August 1, 2016
Firms tout resilience, cost-cutting in difficult quarter
The long stretch of low oil and energy costs left its footprint on chemical company earnings in the second quarter as companies were forced to pass those savings on to their customers in the form of lower prices. But some sectors—particularly consumer specialties and agriculture—sidestepped the squeeze.
At DuPont, the agriculture business played hero, thanks to strong demand for corn seed and insecticides. Operating earnings for the business shot up 12% compared with last year’s second quarter. That boosted overall earnings 10% to more than $1 billion, better than analysts hoped for.
“Ag did better than expected in a very challenging market,” commented DuPont CEO Edward Breen on a conference call. He explained that DuPont was working to capture low raw material costs and operational savings but warned that rock-bottom prices for agriculture commodities will haunt the business for the foreseeable future.
Other highlights were in DuPont’s nutrition and health business and biosciences business, where earnings were up on strong sales of probiotics, specialty proteins, and biomaterials. The firm’s performance materials business had a successful quarter because of increased demand from U.S. and Chinese auto manufacturers. But volumes were lower in electronic chemicals and protection products.
Dow Chemical managed to push up earnings by 1% in the quarter even as lower prices weighed on sales, which sank 7%. Its agriculture business saw sales drop on low commodity prices, though productivity improvements stabilized earnings. Now the full owner of Dow Corning, Dow saw increased sales of silicones in consumer and construction applications.
Dow CEO Andrew N. Liveris touted the resilience and global nature of Dow’s businesses. “Despite the varied economic landscape, we continue to see favorable conditions and robust demand in our core consumer-led markets of packaging, automotive, and construction,” he told shareholders.
Huntsman Corp. and BASF had difficult quarters as lower selling prices impacted almost all types of chemicals. At Huntsman, lower prices helped push earnings down by 39% in performance products and 11% in pigments and additives. BASF saw earnings from basic chemicals fall 14%, though overall sales volumes were up compared with last year’s second quarter.
Industrial gas supplier Air Products also saw low energy prices impact its sales, but only by 1%. CEO Seifi Ghasemi thanked the firm’s employees for implementing his cost-saving and restructuring plans, which he said were key to raising earnings by 17%.
Divestments and mergers are another way chemical firms are managing in the uneven economic environment. Huntsman is getting ready to spin off a business containing titanium dioxide and textile chemicals. Air Products is spinning off its electronics materials business, which is to be called Versum Materials. And Ashland plans to separate Valvoline, its motor oil and retail chain. Overshadowing them all will be the combination of Dow and DuPont, expected to be complete later this year.
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