Zacks Industry Outlook Highlights: Eastman Chemical Company, Celanese and The Dow Chemical Company
CHICAGO, Jan. 25, 2012 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Banks, including Eastman Chemical Company (NYSE: EMN), Celanese Corp. (NYSE: CE), and The Dow Chemical Company (NYSE: DOW).
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A synopsis of today's Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/68371/Chemical+Industry+Stock+Outlook+-+Jan.+2012
For 2012, the global outlook for chemicals is mixed, as the U.S. and EU face sluggish local economies and debt constraints, while output from emerging markets is expected to increase more rapidly.
According to the American Chemistry Council (ACC), the U.S. chemicals industry will experience more moderate production increases in 2012 after a strong post-recession recovery.
Most major end-use markets for chemicals have recovered, helping to maintain the industry's contribution to U.S. economic growth.
The ACC forecasts gradual improvement this year, before a stronger recovery takes hold in 2013. U.S. chemical output is expected to slow to 1.6% in 2012 from 2011's 3.8% pace, then rise to 2.1% in 2013.
The chemicals outlook indicates modest growth over the next several years, depending on certain factors including strengthening domestic demand and an improvement in exports abroad. Exports were up nearly 11% to $189 billion in 2011 and are expected to exceed $230 billion in 2014.
While the U.S. economy is not headed towards another recession, the European debt situation along with other economic factors pose downside risks to the U.S. economic outlook.
The ACC expects total growth in the European chemicals output to be weaker than its previous forecast in 2011 and 2012, due to heightened uncertainty and inventory trimming. Following a strong demand recovery with double-digit growth in 2010, much of 2011's rise in chemicals output took place in the first quarter. Since then, production has been relatively flat.
Nevertheless, the European Chemical Industry Council (ECIC) believes chemical industry growth will resume in 2012, strengthening slowly through the year. The industry group projects 2% year-over-year growth in 2011 and 1.5% expansion in 2012.
While developed nations, constrained by debt and tighter fiscal policies, are likely to expand chemical production at a moderate pace, output from the emerging markets is forecast to increase more rapidly.
Asia and other emerging markets will continue to lead the world in volume gains, with China and India showing the most significant increases. Chemical manufacturers in the emerging markets are expected to show 5.4% production increases in 2011, 6.2% in 2012 and 7.5% in 2013.
End-markets for chemical products are showing strong growth. This growth has been reflected in the earnings releases of most chemical companies for third-quarter 2011. Eastman Chemical Company (NYSE: EMN), for example, reported a 20% increase in sales revenues, primarily driven by increased selling prices.
Combined with the restructuring and cost-saving programs that many chemical companies implemented last year, output growth is driving high earnings across the sector, to the extent that many companies are confident of out-performing full-year forecasts.
Based on the strong third-quarter results, Eastman Chemical Company expects fourth-quarter 2011 earnings per share to be higher than fourth-quarter 2010 and full-year 2011 earnings per share to be approximately $4.62.
Celanese Corp.'s CE) revenue also grew 20% year over year to $1.81 billion in third quarter 2011 driven by higher volumes across all business segments and favorable currency impacts. Encouraged by the third-quarter strength, the company raised its outlook for full-year 2011.
The company now expects 2011 operating EBITDA to be at least $280 million higher than 2010's $1,122 million and adjusted earnings per share to be at least $1.30 higher than 2010's $3.37, based on a tax rate and diluted share count of 17% and 159 million shares, respectively.
The Dow Chemical Company's DOW) revenue grew 17% year over year to $15.1 billion by volume (7%) and pricing (17%) gains across all business segments and geographical regions, particularly Latin America and Asia-Pacific.
Growth in export markets has been driven by several factors. These include favorable energy costs (natural gas) due to the abundance of newly found shale natural gas and demand from the emerging markets, where recovery and expansion have been the strongest.
Further, the cost-containment measures implemented by chemical companies, such as plant shutdowns, aggressive cost cutting and production improvements, should continue to bolster industry-wide margins. The resultant large cash flows could then be leveraged for growth opportunities.
Celanese, DuPont and Eastman Chemical have short-term Hold recommendations, while Dow Chemical has a short-term Buy recommendation.
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