Specialties Earnings Mixed; Asian Impact Figures Heavily

03 August 1998 00:00  [Source: ICB Americas]

By Dan Scheraga

The economic troubles in Asia were an impediment to earnings by specialty chemical companies during the second quarter, as were reduced sales volumes, though they did not prevent some companies from posting impressive gains.

One such firm is Nalco Chemical Company, whose second quarter sales grew 14 percent year-over-year to a record $403 million. This raised income from $40.1 million in the year-ago period to $42 million in the second quarter. The companyÕs industrial, pulp and paper, specialty and process divisions all recorded strong results, as did the middle markets of North America and Europe. Geographically, India, China, Japan, Argentina and Mexico were hearty markets for the company.

Chairman and CEO Ted Mooney expects a solid year for Nalco despite the Asian currency troubles. ÒIn addition to the outstanding market acceptance of our platform technologies, we continue to see positive results from our new operating organization which reflects our customersÕ increasingly global approach to doing business.Ó

He adds that Nalco intends to continue its acquisition strategy, which led to several purchases in the second quarter. ÒWe will continue to acquire companies that do what we do bestÑbuild value for customers through on-site service and technical expertise. Our acquisition strategy is supplementing our growth by enabling us to penetrate new markets, add new technology and access new customers.Ó

Another specialties company that performed well in the past quarter is Cabot Corporation. The company posted net income of $33.3 million for the quarter that ended on June 30, 1998, up from $28.7 million the year before.

This comes despite a 5 percent drop in sales to $354 million. The company blames the sales dip on a 3 percent reduction in chemical volumes and the passing along to its customers of savings in carbon black feedstock costs.

Sales of fumed silica and carbon black were flat, but greater sales of the latter in North America offset a collapse of sales in Asia-Pacific, which weighed in 24 percent less than during the previous year. The company received some relief from its microelectronic materials division, whose sales volumes ballooned 41 percent.

ÒThe companyÕs chemical businesses were increasingly affected by weakened Asian conditions as the third quarter progressed,Ó says chairman and CEO Samuel W. Bodman. ÒWith the exception of our microelectronic materials business, each of our chemical businesses experienced lower Asian demand.Ó

He adds, ÒOur chemical businesses performed quite well outside of Asia-Pacific, such that they more than made up for the effects of the Asian downturn, a strengthened US dollar and a weaker liquefied natural gas market during the quarter to generate a positive year-to-year earnings comparison.Ó

Other companies were not as successful. Lubrizol CorporationÕs revenues dropped 6.3 percent to $406 million in the second quarter. Net income fell 14.7 percent to $40 million. The company blames lower sales volumes caused by the weakness in Asia, as well as the generally unfavorable conditions of the lubricant additives industry.

The company also says that product pricing was pressured by strong competition and that earnings were hurt by higher interest expense and a higher effective tax rate. On the plus side, raw material costs declined, though not enough to completely offset the companyÕs shortfalls.

Also taking a hit in the second quarter was Ethyl Corporation, whose sales dropped to $244.2 million from $269.3 million in the year-ago period. As a result, net income slipped from $21.9 million to $16.8 million. The decline stemmed primarily from lower shipments and operating profits of lead antiknock compounds, as well as reduced profits from petroleum additives.

Weak demand in Asia-Pacific also hurt earnings. Sales volumes of petroleum additives were slightly higher in the second quarter, and improved cost efficiencies gave the company a lift, but those benefits were more than counterbalanced by reduced average selling prices associated with the marketÕs competitiveness.

However, the company hopes to bounce back on CanadaÕs recent lifting of its ban on the importation and interprovincial trade of manganese tricarbonyl. Ethyl Corporation may receive a $13 million payment from the Canadian government to compensate for costs and lost profits stemming from the ban (CMR, 7/27/98, pg. 7).

Sybron Chemicals Inc. also struggled in the second quarter. Operating income fell from $7.1 million to $5.9 million in the quarter, despite a 3.3 percent gain in sales to $49 million.

The companyÕs textile chemical specialties segment took a tumble in operating income of 17.8 percent to $4.4 million, although sales rose 11.3 percent to $36.7 million. The company blames weakness in the US textile chemicals market. European textile chemical sales rose nearly 1 percent on a 5.2 percent volume gain, which was offset by a 4.4 percent negative currency impact relating to the US dollarÕs strength against the Dutch guilder.

SybronÕs environmental products and services business sales slid 9.7 percent because of softness in the ion exchange market and reduced biochemical sales for consumer products. The impact of these was partially offset by growth in the companyÕs line of toner polymers. Operating income fell 12.2 percent to $1.5 million, which the company attributes to shortfall in sales volume.

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