For Immediate Release
Chicago, IL –July 25, 2017 – Today, Zacks Equity Research discusses the Industry: Oil & Gas, Part 2, including Dow Chemical (NYSE: DOW – Free Report), DuPont (NYSE:DD – Free Report), Eastman Chemical (NYSE: EMN – Free Report), Celanese (NYSE: CE – Free Report) and Air Products (NYSE: APD – Free Report).
Industry: Chemicals, part 1
The chemical industry is getting its mojo back after a long dry spell. The highly cyclical industry is finally finding traction again after bearing the brunt of the global economic crisis.
The industry got off to a buoyant start to the year with a strong performance in the first quarter, notwithstanding a few headwinds. The March quarter showed strong demand trends for chemicals across key end-use markets such as construction, automotive and electronics.
A host of companies in the space including prominent names, such as Dow Chemical (NYSE: DOW – Free Report ), DuPont (NYSE:DD – Free Report), Eastman Chemical (NYSE: EMN – Free Report ), Celanese (NYSE: CE – Free Report ) and Air Products (NYSE: APD – Free Report ), produced earnings beats in the quarter, many benefiting from strong volume gains. The outperformance was driven by solid demand across construction and automotive markets as well as strategic measures including productivity improvement, pricing actions, portfolio restructuring and earnings-accretive acquisitions.
Second-quarter earnings season is currently underway, with most of the major chemical players yet to come up with their quarterly numbers as of this write-up. The earnings momentum is expected to continue in the June quarter as the fundamental driving factors remain firmly in place.
The Chemicals industry has also outperformed the broader market year to date. The industry returned around 13% over the same time frame, while the S&P 500 index advanced nearly 11%.
Chemical companies continue to shift their focus on attractive, growth markets in an effort to whittle down their exposure on other businesses that are grappling with weak demand. The industry is also seeing a pick-up in consolidation activities -- exhibited by a wide swath of deals in the recent past -- as chemical makers are increasingly looking diversify their business and enhance operational scale.
Moreover, cost-cutting measures (including plant closures and headcount reduction) and productivity improvement actions by chemical companies are expected to continue to yield industry-wide margin improvements.
Notwithstanding some lingering headwinds, the industry’s momentum is expected to continue through the balance of 2017, supported by continued strength across key end-use markets, an upswing in the world economy and significant shale-linked capital investment.
U.S. Chemical Industry Set to Ride High
The prospects for the U.S. chemical industry look bright. The American chemical industry is set for strong growth this year and the next despite several challenges, including a strong dollar, soft export markets and a low oil price environment.
The American Chemistry Council (“ACC”), an industry trade group, envisions accelerated growth for the domestic chemical industry on the back of an improving global economy and a surge in shale-linked capital investment.
The ACC, in its year-end 2016 outlook, said that it expects national chemical production to rise 3.6% in 2017, further accelerating to 4.8% growth in 2018. The trade group also expects basic chemicals production to expand 4.2% in 2017 on the back of advances in manufacturing and exports. Moreover, production in the specialties chemical segment is expected to pick up pace and rise 3% in 2017.
The ACC also expects American chemical industry’s growth to transcend the nation’s overall economic growth in the long haul. It sees domestic chemical sales to cross the $1 trillion milestone by 2020.
The shale gas boom in the U.S. has also been a huge driving force behind chemical investment on plants and equipment in the country and has provided domestic petrochemicals producers a compelling cost advantage over their global counterparts. The shale revolution has made the U.S. an attractive investment hotspot and incentivized a number of chemical companies including industry heavyweights such as Dow Chemical to pump in billions of dollars to beef up capacity. The ACC expects domestic chemical industry capital spending to increase at a 7% annual rate through 2021.
Zacks Industry Rank
Within the Zacks Industry classification, health insurers are broadly grouped in the Medical sector (one of the 16 Zacks sectors).
We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. We put our X industries into two groups: the top half (industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by more than twice as much. The Zacks Industry Rank is #177 (bottom 34%). The ranking is available on the Zacks Industry Rank page .
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