Look for signs of a double-dip recession on chemical company Q2 conference calls

Bull.jpgAs we come upon the second quarter earnings season, the focus will be less on the results themselves, and more on what chemical companies are seeing and expecting at this critical juncture.

Fears of a double-dip global recession abound, driven by the European debt crisis and the resulting austerity measures by governments to balance their budgets. And concerns about a sharp slowdown in China’s economy linger as that government aims to cool rampant speculation in its property market.

“Austerity” has made a big push into the financial lexicon these days, as noted by Paul Hodges, chairman of UK-based consultancy International eChem in the ICIS Chemicals & the Economy Blog.

Mentions of the dour term in the Financial Times shot up dramatically in May and rose further in June. Hodges sees the odds rising of entering the next phase of the downturn – a protracted affair.

But second quarter profits will almost assuredly come in strong, based on senior executive chatter at the American Chemistry Council (ACC) annual meeting in June, as well as positive guidance from European majors BASF and Arkema. CEOs of major chemical firms at the ACC meeting indicated that Q2 results were looking robust, and expressed optimism that the European debt crisis could be contained,

France-based specialty chemicals company Arkema expects record second quarter profits, while BASF indicated a better-than-expected Q2. Wall Street consensus estimates show US major Dow Chemical posting earnings per share of $0.58 in Q2 – up sharply from the $0.05 it earned a year-ago. And DuPont is expected to boost Q2 profits by 52% year on year to $0.93/share.

Purer-play US commodity chemical and polymers firm Westlake Chemical is expected to nearly double profits year on year to $0.50/share.

But going forward, the earnings comps will get much tougher. On the upcoming Q2 conference calls, analysts will be looking for any signs of a slowdown in momentum or trouble ahead. The impacts from Europe and China will feature prominently on the calls.

And in the US last week, the Federal Reserve indicated that the economic outlook has deteriorated a bit with a downwardly revised GDP growth forecast of 3-3.5% for 2010 versus its estimate of 3.2-2.7% in April, based on “economic developments abroad.”

Most signs point to rough sledding ahead, but look for more clarity after Q2 results.

 

Photo credit: www.johnbatchelorshow.com

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