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Pricing power lifts chemical earnings

The third quarter saw specialties trend higher amid strong demand across many markets

by Melody M. Bomgardner
November 1, 2018 | A version of this story appeared in Volume 96, Issue 44


Third-quarter results

Higher prices and demand for specialties drove growth.
Note: Figures are percent change from year-ago quarter. Source: Companies
Table showing change in sales and earnings for major chemical firms in the third quarter of 2018.

Sales and earnings for leading chemical companies continued to grow in the third quarter, thanks to broad-based demand from consumers and industrial customers. Among the raft of positive numbers, higher profits from specialties stood out. Firms have raised prices across the board, staying ahead of cost increases for energy and raw materials.

DowDuPont reported sales up 10% for the quarter compared with 2017 pro forma third-quarter results. Its growth came half from higher sales volumes and half from higher prices. Earnings soared 33% to $1.7 billion.

The company wasted no time with a plan to reward shareholders; it announced a $3 billion share-buyback program to wrap up on April 1. That’s when DowDuPont will spin off Dow Holdings, its materials science company and the first of three firms to be carved out of the combined chemical giant. DowDuPont also raised its target for cost savings from the merger to $1.6 billion from $1.4 billion last quarter.

The cost synergies helped DowDuPont overcome higher raw material costs. Hot spots of demand also helped, including in consumer packaging, probiotics, specialty proteins, elastomers, and chemicals used in displays. In contrast, the company noted weakness in construction chemicals for the U.S. residential market.

The scale of DowDuPont’s investor giveback and synergy savings was “more aggressive than we expected,” said Laurence Alexander, an analyst at the investment bank Jefferies. In a research note, he wrote that demand trends and the quarter’s strong results will help the company shift attention to its long-term plans.

Trends favoring nutrition products lifted earnings at DSM by 26% over last year’s third quarter. Standouts included nutrition products for poultry, and dietary supplements and drug ingredients for humans.

It was not only specialties that boosted earnings, however. At Celanese and Eastman Chemical, sales of basic acetyl chemicals benefited from favorable market conditions. Celanese booked a 28% profit margin on its $1 billion in acetyl chemical sales. Meanwhile, Eastman’s sales of its Tritan-brand copolyester exceeded those of last year.

BASF’s third quarter saw the German firm complete its $9 billion acquisition of several of Bayer’s agriculture businesses and a deal to place its oil and gas business in a joint venture with LetterOne. With the new structure, BASF’s sales and earnings both increased more than 7%, mostly because of higher prices for petrochemicals and performance chemicals, compared with the third quarter last year.

In a conference call with analysts, BASF CEO Martin Brudermüller cautioned that factors outside management’s control have cast a shadow. Low waters in the Rhine River have restricted material flow in and out of the firm’s main complex in Ludwigshafen, Germany, forcing output to be turned down. He also noted a slowdown in the auto industry, an important outlet for the company.

“This development concurs with the increasing uncertainties regarding the world economy in light of the trade conflicts, in particular between the U.S. and China,” Brudermüller said.


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