Commentary: ‘Specialty’ delivery expected for Q2 earnings season

As we approach Q2 earnings season, analysts are expecting a mixed performance for US-based chemical companies. Earnings will likely be skewed with many commodity chemical companies seeing year-on-year declines, and select specialty chemical companies showing growth.

“We expect a benign earnings season, albeit one that will not shed much light on EU trends [post the Brexit vote]. Chemical companies will likely flag better trends in Europe through May, quarter-on-quarter stability in North America (with shale-related weakness lapping in Q2/Q3), and status quo in Asia,” said Laurence Alexander, analyst with Jefferies.

“We expect some [US] Gulf projects to slip due to uncertainty over medium-term oil/gas dynamics. Leverage to the consumer (personal care), beneficiaries of oil stimulus (mobility), and industrial efficiency will likely be favourable top-down themes that companies emphasize, along with deleveraging,” he added.

Coatings companies are also expected to do well. In the US, while overall specialty chemical volumes year-to-date through May were down 2.0% year on year, coatings volumes were up 2.3%, according to the latest data from the American Chemistry Council (ACC).

Other specialty sectors showing volume strength during the period were adhesives and sealants (+3.2%), construction chemicals (+3.7%), cosmetic additives (+5.3%), flavours and fragrances (+3.6%), food additives (+2.5%), printing inks (+3.1%) and rubber processing (+2.9%). Declines were led by oilfield chemicals (-20.0%), mining chemicals (-13.4%), electronic chemicals (-6.4%) and pigments (-4.7%).

On the commodity side, year-on-year comps will be challenging for companies exposed to olefins and vinyls. Holding up better will be acetyls (Celanese) and styrenics (Trinseo). Wells Fargo analyst Frank Mitsch bumped up his Q2 earnings per share estimate on Celanese by $0.10, to $1.55.

And Celanese’s Advanced Engineered Materials segment should benefit on the auto side. “Recent commentary from companies with auto end markets suggests demand fared better in Q2. In addition, global auto production seems to be gaining momentum,” he added.