Wall Street expects stronger Q4 but comparisons get tougher

21 January 2011 20:15  [Source: ICIS news]

Wall Street expects mostly higher earningsBy Joseph Chang

NEW YORK (ICIS)--Wall Street analysts are expecting mostly higher fourth-quarter 2010 earnings from US chemical companies along with some upside surprises.

However, the year-on-year comparisons will be tougher than the second- and third-quarter year-on-year comparisons.

“We expect Q4 earnings across our portfolio to more than double year-ago results. Due to seasonality, however, performance is likely to be down over 30% sequentially,” said BB&T analyst Frank Mitsch in a research note.

He said expects profit improvement leaders to include LyondellBasell, Innophos and Georgia Gulf - all companies that posted losses in the year-ago period.

The analyst noted that only a handful of companies were expected to post profit declines - Huntsman, Arch Chemicals, Solutia and DuPont, reflecting specific issues such as a higher tax rate (Huntsman), timing shifts (Arch), the return of incentive compensation (Solutia) and tough comps (DuPont).

“Relative to estimates, we believe a handful of names could post upsides, including Georgia Gulf [strong exports], Westlake [lower ethane], Huntsman [TiO2, polyurethanes], and Arch [Asian biocides],” said Mitsch.

US coatings and chemicals producer PPG has already reported an earnings beat, coming in with fourth-quarter earnings per share of $1.25 (€0.93) versus the consensus estimate of $1.13.

However, shares of PPG “fell 2% post the Q4 release as strong segment results were overshadowed by concerns over rising raw materials and slower China GDP”, said Deutsche Bank analyst David Begleiter.

The analyst said he expected PPG to use its cash pile of around $2bn for bolt-on acquisitions and share buybacks.

“We also believe a large coatings acquisition is possible,” he said.

Jefferies & Co. analyst Laurence Alexander said he expected fourth-quarter earnings to be in line with, or better than expectations.

However, “outlooks should remain cautious, flagging a stop-and-go recovery, margin pressure from rising raw material costs, potential pension headwinds, and tougher year-over-year comparisons,” he noted.

Volumes are moderating and year-on-year comparison are getting tougher moving forward, leading to more modest sales growth in 2011, said BB&T’s Mitsch.

“Tougher [comparisons] probably lead to slower top-line growth in 2011. The majority of sales growth will likely be driven by pricing gains [supported by raw material inflation]) versus volumes given the strong run-up in the latter in 2010,” he said.

Earnings per share
Q4 2009 EQ4 2010 % Change
Dow Chemical $0.18 $0.34 89%
DuPont $0.44 $0.32 -27%
Hunstman $0.27 $0.18 -33%
Celanese $0.50 $0.66 32%
Eastman Chemical $1.14 $1.49 31%
Methanex $0.28 $0.39 39%
Westlake Chemical $0.19 $0.74 289%
PPG Industries* $0.86 $1.25 45%
FMC $0.94 $1.03 10%
* reported on January 20
Source: Yahoo! Finance

($1 = €0.74)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
To discuss issues facing the chemical industry go to ICIS connect

Author: Joe Chang

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