Related Links

News

Dismal Second-Quarter Earnings for Chemical Companies, Coating Materials Suppliers

Second-quarter earnings reports from some of the largest chemical companies and coating materials suppliers, including BASF, Clariant, Dow, DuPont, and PPG, reflect diminished demand from key end-use sectors.

While virtually all major chemical companies and coating materials suppliers cited "some” positive aspects of their second-quarter earnings reports, the overall performance supported the belief that commercial business entities and consumers alike are pulling back in their spending on capital improvements and remodeling. BASF, Clariant, DuPont, Dow, and PPG all reported double-digit declines in revenues in the second quarter, with mixed results on the profit front.

Following is a second-quarter earnings performance summary:

BASF earned $482 million during the second quarter on $17.6 billion in sales—a decline of 74% and 23%, respectively, vs. the same period a year ago. The results missed analyst consensus earnings estimates of $533 million for the quarter. At the same time, BASF said its chemicals and plastics divisions showed some improvement in the second quarter vs. the first quarter.

Clariant’s sales dipped 21% in the second quarter, with operating income down from the same period year over year but much improved compared to the first quarter of 2009. Cash flow from operations improved more than 450% compared to the same period last year. "Our focus on generating cash, decreasing costs and reducing complexity has shown results, both in terms of cash flow that remained strong and operating income,” said CEO Hariolf Kottmann.

Dow Chemical reported a second-quarter net loss of $486 million on sales of $11.3 billion. During the same period in 2008, the company earned $762 million on $16.3 billion in sales. Comparing before-tax earnings, excluding unusual items, the company earned $1.6 billion during the 2009 second quarter vs. $946 million in the first quarter.

At the same time, Dow CEO Andrew N. Liveris cited the potential of its various strategic, namely: the sales of Dow’s interest in the Optimal Group—a series of Malaysian petrochemical joint ventures—to its partner, Malaysia’s national oil company, Petronas. The $660 million deal is the latest in a series of divestitures—including the sale of its interest in a refinery, its calcium chloride business, and Morton Salt—meant to fine tune its portfolio and to help it pay for its Rohm and Haas acquisition. Dow also disclosed that it is folding its polycarbonate, styrenics, and styrene-butadiene rubber and latex businesses into a new subsidiary called Styron Corp., preparing it for a possible sale.

DuPont’s Coatings and Color Technologies division reported sales of $1.4 billion for the second quarter were down 26%, primarily reflecting continued weakness in motor vehicle markets and to a lesser extent titanium-dioxide product. Coating sales and earnings also declined substantially, reflecting a decline in motor vehicle production. North America motor vehicle production was down 48% vs. prior year quarter and European motor vehicle production was down 26%. Refinished paint products volume dropped substantially, driven by continued weakness in global demand. In the Performance Materials division, sales plummeted 40% to $1.1 billion, reflecting weak demand in major markets in all regions, particularly in motor vehicle and general industrial market.

PPG Industries reported sales for the second quarter of $3.1 billion, a decline of 30% vs. the prior year’s second quarter. This included a 6% decline resulting from a business divestiture (Automotive Glass & Services) in 2008. Second quarter 2009 net income includes an aftertax charge of $2 million, or 2 cents per share, to reflect the net increase in the current value of the company’s obligation under its proposed asbestos settlement, which is pending court proceedings. Reported second quarter 2008 net income included one-time, aftertax charges related to PPG’s AG&S business of $23 million, or 14 cents per share, and an aftertax charge of $2 million, or 1 cent per share, for the proposed asbestos settlement.

"While sales and earnings were down vs. last year, our cash generation was up 25% and our earnings rose considerably in comparison to the previous two quarters,” said Charles E. Bunch, PPG chairman and CEO. “Clearly, we are continuing to experience very challenging conditions in many of our end-use markets. However, we are encouraged as our total sales during the quarter remained fairly consistent month to month, and were also steady within each major region. This gives us a degree of confidence that most markets have stabilized, albeit at considerably lower levels than prior years.”

Bunch said that PPG’s coatings segments combined with its Optical and Specialty Materials segment accounted for 90% of total segment earnings and were considerably stronger than last quarter. “Specifically, our Architectural Coatings – EMEA and Performance Coatings segments delivered nearly flat year-over-year earnings in local currencies, which is a noteworthy achievement, especially when considering the volume headwinds related to the weakened economy,” he said.

Performance Coatings segment sales in the second quarter 2009 decreased $203 million, or 16%, vs. the prior year’s quarter. Currency conversion accounted for more than 40% of the sales decline.Volumes remained down in the architectural coatings – Americas and Asia/Pacific business, but they improved vs. first quarter 2009 year-over-year levels. The protective and marine coatings and aerospace businesses experienced mild volume declines.

PPG’s Industrial Coatings segment sales for the second quarter decreased $411 million, or 36%, due primarily to lower volumes in the automotive OEM coatings and industrial coatings businesses, reflecting the continued severe declines in global demand. Weaker foreign currencies also detracted from sales. Segment earnings for the quarter were $28 million, a decrease of $81 million from the prior year’s second quarter, due to significantly lower volumes and negative currency impacts. Substantially lower costs as a result of aggressive cost management, combined with improved pricing and lower input costs, partially offset the volume weakness. Earnings in the segment were $68 million higher than in the fourth quarter 2008, despite a slightly lower sales level.

Architectural Coatings – EMEA segment sales for the quarter decreased $140 million, or 21 %, due in large part to weaker foreign currencies. Year-over-year volumes were down mid-single-digit percentages, but volume trends improved vs. the first quarter 2009. Segment earnings decreased $16 million, with $12 million attributed to foreign currency conversion.

Commodity Chemicals segment sales for the quarter decreased $176 million, or 36%, due primarily to lower volumes and lower selling prices. The decline in demand was due to lower U.S. industrial activity. Segment earnings decreased $26 million due to lower sales volumes and lower manufacturing utilization as a result of the lower activity levels. The impact of lower input costs, primarily natural gas, was counteracted by the lower selling prices.
 

Share this article

More services

 

This article is featured in:
Industry Trends & Happenings

 

Comment on this article