For the chemical industry, 2018 was the kind of year that inspires confidence in executives and shareholders. But early fourth-quarter results from a handful of companies landed with the sound of a sad trombone. Air Products and Chemicals, DowDuPont, and Sabic reported zero sales growth from the year-ago quarter.
The fourth quarter is typically the slowest time of the year for the industry. But it is likely that the period’s lack of verve is a harbinger of the slow economic growth anticipated for 2019 rather than merely a typical operations slowdown.
Stock analysts have had their antennae raised for word that firms are lowering their earnings outlooks for this year. For the most part, executives are standing pat. At Air Products, CEO Seifi Ghasemi refused to change his expectation of 10% year-over-year earnings growth.
“We do not control events that impact economies around the world, but we do control the operational performance of Air Products,” Ghasemi wrote to investors.
Ed Breen, CEO of DowDuPont, sounded similarly unruffled in a conference call with analysts. “We’re keeping an eye on short-term softening in the fourth quarter,” he said, adding that the firm has seen “destocking in a few of our value chains that went beyond normal seasonality.”
Indeed, according to Bruce McCain, chief investment strategist at KeyBank, “Manufacturing got a weak start in the fourth quarter.” In his first-quarter outlook, he writes that “economic anxiety” about slowing growth can be a self-fulfilling prophecy, causing pullbacks on manufacturing production, business investments, and consumer spending.
The chemical industry has made moves since the 2008 Great Recession to ensure that future downturns would be easier to weather. Strategies have included investing in increasing operational efficiency, selling low-performing businesses, and paying off risky debt. DowDuPont can weather the coming headwinds, Breen says, with cost synergies, new capacity additions, and product innovations.
While zero is a pretty striking figure for sales growth, demand wasn’t terrible in the fourth quarter. Air Products and DowDuPont saw overall sales volumes grow by a tiny bit. Both firms saw strong demand in Asia, and DowDuPont also did a brisk business in seeds sold in Latin America. But overall revenues were flat thanks to the strong dollar and the lag time in passing on higher material costs to customers.
At Celanese, strong demand for engineered materials helped lift its sales by 6%. And the higher prices it charged in its acetyl business helped the firm expand margins and lift earnings by more than 16% overall.
Outside the US, Sabic capped a strong year with a flat sales quarter. The company was pleased with its full-year 2018 results, which it credited to a “transformation program.”
In Switzerland, Lonza touted a 9% growth in sales for all of 2018 over the prior year, due in large part to its Pharma and Biotech segment. The company did not break out fourth-quarter results. Lonza says it will make additional investments in its health-care businesses in 2019 and expects sales to grow by mid to high single digits.