The Styron businesses were part of the Basic Plastics and Performance Products segments including products like Styrenics – Polystyrene (PS), acrylonitrile butadiene styrene (ABS), styrene acrylonitrile (SAN) and expandable polystyrene (EPS), Emulsion Polymers (paper and carpet latex), Polycarbonate (PC) and Compounds & Blends.

Polycarbonate is an engineering thermoplastic used in applications such as optical media, electrical and lighting. Styrenic plastics (polystyrene, ABS, and SAN) find applications packaging and food service, portable appliances, consumer electronics, automotive and building and construction. Expandable polystyrene is typically used in rigid foam products such as heat insulation, packaging, impact sound insulation and drainage. SB and SA Latex are used in the paper/paperboard and flooring applications.

The business also includes Synthetic Rubber and Automotive Plastics including PULSE™ engineering resins, MAGNUM™ acrylonitrile butadiene styrene, INSPiRE™ performance polymers, and VELVEX™ reinforced elastomer.

Synthetic rubber is used in a broad portfolio of products from tires to hoses, conveyor belts, and footwear to specialized high performance elastomers. Automotive plastics are used in many different automotive applications, such as instrument panels, mid consoles, door panels, interior trim, seat structures and bumpers.The business includes Dow Chemical’s 50% share in the styrene-PS joint venture formed with Chevron Phillips in 2007.

Styron will become a standalone chemicals and plastics company that serves customers in automotive, appliances and packaging industries. In 2009, this business posted $3.5 billion in revenues and 8% in EBITDA margins. The styrene industry has been showing weak margins over the past few years on tepid demand and an oversupply of styrene monomer.

The sale of the Styron business is part of Dow Chemical’s effort to reduce debt and shed its non-core assets that no longer contribute to growth resources inside the company. We believe the divestiture of this low-margin, slow-growth business and the use of proceeds to reduce Dow’s sizable debt load are positives.

The deal is another major step in Dow’s portfolio transformation strategy to reduce earnings volatility and focus resources on higher-margin, higher-growth specialty & performance assets to drive a powerful earnings recovery in coming years.

Since March of last year, Dow Chemical has announced and closed several divestitures — Morton Salt, TRN refinery and SEA olefins, calcium chloride, powder coatings businesses, carbide emulsion plant, CE acrylic plant and Styron (total value of over $5 billion). Dow Chemical still expects to divest roughly another $2.0 billion of assets that do not fit with its long-term growth profile.

We also believe that Dow Chemical will continue to focus on its Basic Plastics business, which could generate between $4.5 billion and $6.0 billion. We have reaffirmed our Neutral recommendation on Dow Chemical.

Zacks Investment Research

(DOW) Dow Chemical Company Divests Styron Business

Pioneer Hi-Bred, a DuPont business, is the world’s leading source of customized solutions for farmers, livestock producers and grain and oilseed processors. The Des Moines, Iowa-based company provides access to advanced plant genetics in nearly 70 countries.

Pioneer expects initial operations to begin by the end of 2011 after construction is completed. The new plant is expected to employ about 50 people. As the first Pioneer production facility in Missouri, the new plant primarily will serve soybean producers in the US. Pioneer also has a research facility in Miami, Missouri, as well as corn, soybean, sorghum and wheat seed outlets in the state.

According to DuPont, soybean varieties produced by Pioneer show a 1.3 bushel per acre yield advantage against all competitive varieties. Pioneer® brand soybeans, with the original Roundup Ready® gene, have an average a 2.7 bushel per acre yield advantage over competitors.

Pioneer has recently launched the high yielding Y Series soybean. The company is using Accelerated Yield Technology and marker-assisted selection to boost the yield potential and improve the agronomic performance of these varieties.

Last week, DuPont had announced that it is emerging stronger from the global economic crisis after undertaking several measures to better position it for sustainable growth. The company has focused on aggressive cost-cutting and plans to capture $1 billion in fixed cost productivity and $1 billion in working capital productivity gains during 2010?2012. A focus on emerging markets and strong performance in the Agriculture & Nutrition segment will likely generate about 10% growth in the top line during 2009 2012.

DuPont hopes to grow earnings at 20% between 2009 and 2012. However, the U.S. housing market slump has impacted fertilizer products such as Corian and Tyvek. Weak North American automotive and construction markets have hurt its Coatings business. Pharmaceutical royalties are also expected to decline after the expiry of patents in 2010. Hence, we have a Neutral rating on the stock.

Zacks Investment Research

(DD) DuPont to Open New Soybean Seed Production Facility

The Kingsport, TN-based company attributed the decline in earnings to power outages at a Texas facility. Eastman had announced a power outage at its Longview, Texas, plant on February 20 this year. The company stated that it expects most of the impact of the outage to be offset by higher-than-expected sales and operating margins.

Eastman Chemical Company manufactures and sells chemicals, plastics and fibers with 12 manufacturing sites in the U.S., Europe and Asia-Pacific, supplying products throughout the world. Eastman is the global leader in acetate yarn and the only producer of acetate flake as well as acetate yarn in the U.S. This provides the company an edge over its competitors such as Industrias del Acetato de Celulosa S.A., SK, Mitsubishi Rayon, UAB Korelita and Novaceta SpA.

Acetate yarn is used in textile products such as suit linings, women’s apparel, medical tape and other specialty fabrics. Although the demand for acetate yarn has been declining because of cheaper substitutes such as polyester and rayon yarns, we expect projected capacity reductions in the acetate filament yarn industry to improve demand for Eastman’s product.

Weakening demand continues to impact Eastman’s operations. The weakness in demand led to lower sales volume and continued low capacity utilization, resulting in higher unit costs. However, the company is benefiting from business restructuring and cost-cutting measures.

As part of the restructuring, the company sold unprofitable units and closed businesses that could not be sold. The company closed its PET polymer operations in Cosoleacaque, Mexico and Zarate, Argentina. It has also exited the PET business in the European region by selling the PET manufacturing sites in Spain, the Netherlands and the U.K.

Eastman’s three stream chemical portfolios, integrated and diverse downstream businesses are driving earnings. The company’s strong balance sheet stands out. While the Fibers business continues to outperform, strong specialties margins look increasingly credible.

We reaffirm our Outperform recommendation on Eastman Chemical.

Zacks Investment Research

(EMN) Eastman Chemical Guides Forecasts Lower

DuPont maintained its R&D investment at $1.4 billion in 2009 during the economic crisis and introduced more than 1,400 new products, up 60% over 2008. The company delivered $1.1 billion in fixed cost productivity and $1 billion in working capital productivity. Free cash flow was $3.2 billion at the end of the year.

DuPont reaffirmed to deliver about 20% compound annual earnings growth for the 2010?2012 period. The company expects to generate about 10% top-line compound annual growth for the period. DuPont also plans to capture $1 billion in fixed cost productivity and $1 billion in working capital productivity gains during the 2010?2012 time frame. Additionally, the company expects earnings per share to be in the range of $2.15?$2.45 in 2010.

The world’s second leading chemical company, DuPont serves markets including agriculture and food, building and construction, communications and transportation. A focus on emerging markets and strong performance in the Agriculture & Nutrition segment will likely generate about 10% growth in the top line during 2009?2012. DuPont expects earnings growth of 20% between 2009 and 2012.

However, weak North American automotive and construction markets have hurt its Coatings business. The U.S. housing market slump has impacted products such as Corian and Tyvek in the Coatings and Performance Material segment. Pharmaceutical royalties are also expected to decline after the expiry of patents in 2010. Hence, we have a Neutral rating on the stock.

Zacks Investment Research

(DD) DuPont Emerges Stronger From Global Economic Crises

While investors in the West continue to vacillate between hope and despair over the possibility of an economic recovery, Asia has some much more definitive signs to go off of.

Take the price surge in petrochemicals, an oil product used in everything from toys to mobile phones prices. The benchmark Platts Global Petrochemical Index, which tracks the cost of major petrochemicals including ethylene, benzene and propylene, recently rose to about $1,200 per ton. That’s the highest price since October 2008, and marks almost a 150% increase since the December 2008 low.

Considering all the products made with petrochemicals, that rise in value could actually mark more than just an Asian ascendancy; it could mean a full-out global rebound.

And it definitely bodes well for chemical companies like Dow Chemical (NYSE: DOW) and DuPont (NYSE: DD), which are perfectly poised to take advantage of any growth.

Promising Signs In The Petrochemical Market In The West

Dow Chemical especially took advantage of the oversupply in North American natural gas to export all sorts of chemicals to Asia. In doing so, it generated exceptional free cash flow and brought in pre-recession level earnings during the last quarter.

Those profitable opportunities should continue, according to Dow Chemical CEO Andrew Liveris, who sees “demand in emerging geographies continuing to show sustained growth, which bodes well for global growth.” And the head of commodities research at Bank of America-Merrill Lynch in London, Francisco Blanch, agrees with Mr. Liveris, noting that “Asian petrochemical demand has increased at a phenomenal rate.”

They both have good reason to think that way too, considering how those markets gave Dow Chemical a 33% boost in volume. China contributed the most at 60%, while India and Russia each supplied 30%.

Both Dow and DuPont sounded very upbeat about demand in emerging economies, especially in Asia. And while they did warn about continued lackluster demand in Europe and the U.S., there are still some signs of recovery:

• Thomas Swift, chief economist at the American Chemistry Council sees U.S. petrochemical production “coming back very sharply.”
• Capacity usage in the larger chemical industry finally hit its one and a half year high of 76% after bottoming out at 68.1% last January.
• Chemical railcar loading – a strong indicator of real demand – rose 11% year-on-year, the highest increase since at least 1999.

So there’s hope, even here.

Global Petrochemical Consumption Drives Prices Higher

The jump in global petrochemical consumption has driven prices higher, reversing the damage done in late 2008 and early 2009. For instance, the cost of naphtha – a chemical industry cornerstone that both ethylene and benzene are made from – jumped from a five-year low of $245 a ton in 2008, to $775 more recently. That bodes well for the entire industrial process, even if diesel demand continues to make slow progress.

Meanwhile, the petrochemical business is one of the few bright spots in the oil industry. The International Energy Agency reports that while total oil demand fell by 1.3 million barrels a day, naphtha consumption rose by 100,000 barrels per twenty-four hours. Unsurprisingly, that uptick was led by China, where demand rose nearly 75% year-on-year in late 2009. But Japan, South Korea, India and Singapore all purchased more as well.

Naturally, the price of naphta-based products also moved up sharply on that increase. Ethylene – the substance used to make shampoo and ketchup bottles – doubled in price since January ‘09. Likewise, polyvinyl chloride (PVC) rose 75%, benzene surged 220% and propylene gained 200%.

Those very compelling numbers might fall somewhat over the short-term, as Chinese demand falters under the government’s fiscal tightening, along with a potential decrease in spending after their New Year in February. But even so, the growth in China and other emerging economies won’t slow down for long.

And when it picks up again, Dow Chemical, DuPont and their more impressive competitors should profit greatly.

Good investing,

Tony Daltorio

View original at: Investment U

(DOW) These Two Petrochemical Companies Have Exactly What The Global Recovery Needs

Quarterly revenues of $722.1 million were 2% lower than $737.7 million in the same period in fiscal 2008. During full year 2009, revenues amounted to $2,826.2 million, a decrease of 9%, compared to $3,115.3 million in the previous year.

During the fourth quarter, revenues in Agricultural Products were $269.5 million, which increased 12% versus the prior-year quarter. This was led by sales gains in Latin America, particularly in Brazil due to improved market conditions for several key crops and growth from new products. Revenues in Specialty Chemicals were $194.2 million, up 2% from the year-ago quarter. This was driven by strong commercial performance in BioPolymer, particularly in the food ingredients markets, as a result of higher volumes and selling prices. Revenues in Industrial Chemicals were $260.1 million, down 16% from the prior-year quarter driven by reduced phosphates selling prices and lower soda ash volumes.

During the full year, revenues in Agricultural Products were $1,051.6 million, a decrease of 1% year over year as sales gains in the Americas and non-crop markets were offset by lower sales in Europe and Asia. Revenues in Specialty Chemicals were $753.1 million, 1% lower than the prior-year period, as strong commercial performance in BioPolymer was more than offset by lower lithium volumes and unfavorable currency translation.

Revenues in Industrial Chemicals were $1,026.7 million, a decrease of 21%, compared to 2008 as lower volumes across the segment and selling prices in phosphates more than offset higher selling prices in most other businesses.

FMC is a diversified chemical company serving agricultural, industrial and consumer markets globally for more than a century with innovative solutions, applications and quality products. For full year 2010, FMC expects earnings of $4.35 to $4.75 per share.

Zacks Investment Research

(FMC) FMC Corporation Beats Consensus Estimates

Full-year earnings were 63 cents per share, down from $1.79 in 2008. However, it was more than the Zacks Consensus Estimate of 49 cents.

Sales in the quarter increased 4% to $12.5 billion compared to $12.0 billion in the fourth quarter of 2008. An increase in sales was driven by a 10% increase in volume and 6% decrease in price. Quarterly volume increased 33% year over year in emerging geographies versus the same period last year.

However, full year 2009 sales decreased 29% and reached $46.5 billion, compared to $65.5 billion in 2008. The fall in sales was primarily due to a 13% decrease in sales volume.

Results by Segment

During fourth quarter of 2009, sales in the Electronic and Specialty Materials segment were almost flat, compared to the same period last year. Sales in Coatings and Infrastructure were down 3.4% year over year while sales in the Health and Agricultural Sciences were up 17%.

Performance Systems segmental sales were down 3.3% while Performance Products sales were almost flat compared to the same quarter of 2008.  Sales in the Basic Plastics segment were up 17% and sales in the Basic Chemicals segment were up 4.6%. Sales in the Hydrocarbons and Energy and Corporate segment were down 28% and 89.7%, respectively.

During fiscal year 2009, sales in the Electronic and Specialty Materials segment were down 19.5% year over year. Sales in Coatings and Infrastructure were down 23.0% and sales in the Health and Agricultural Sciences were down 1.6%.

Performance Systems segment sales were down 28.9% and Performance Products sales were down 30.5%. Sales in the Basic Plastics segment were down 30.3% and sales in the Basic Chemicals segment were down 42.2%. Sales in the Hydrocarbons and Energy and Corporate segment were down 52.7% and 28.8%, respectively.

Balance Sheet

Dow completed the year ahead of its cost reduction and synergy goals, with an end-of-year run-rate of more than $1.7 billion, over 115% of the company’s goal.

As of the end of the year, Dow reduced its net debt to total capitalization to 48%, reflecting the full repayment of the bridge loan related to the acquisition of Rohm and Haas as well as the full repayment of the outstanding balance of the company’s revolving credit facility.

Rohm & Haas Acquisition

Dow Chemical has become the world’s leading specialty chemicals and advanced materials company after acquiring Rohm & Haas for $16.3 billion. Management intends to place Rohm & Haas, along with some specialty chemical businesses, in a new Advanced Materials division. ??This new division expects to achieve annual sales of $14.0 billion and cost synergies of $1.3 billion. The acquisition has broadened Dow’s product range in paints, coatings and electronic materials and increased its position in the specialty chemicals market.

The Rohm & Haas acquisition, a positive for Dow, is expected to consolidate higher margins and fuel a higher growth specialty business and reduce volatility in earnings and cash flow going forward.

Zacks Investment Research

(DOW) Dow Chemical Company Posts Encouraging Results

Sherwin-Williams believed the appropriate steps taken by operating segments to control costs and improve efficiencies have led to the improvement in profit. However, the profit declined to $3.82 per share in 2009 from $4.31 per share in 2008.

Consolidated net sales slipped 5.9% to $1.6 billion in the quarter and 11.1% to $7.09 billion in the year due to weak paint sales volume. Currency translation rate changes increased consolidated net sales by 2% in the quarter and decreased consolidated net sales by 1.3% in the year.

Net sales in the Paint Stores Group declined 11.4% in the quarter to $920.2 million and 12.9% in the year to $4.21 billion due to decreased paint volume sales. Net sales from stores open for more than 12 months fell 11.4% in the quarter and 12.9% in the year. Paint Stores Group segment profit increased 5.9% in the quarter while it decreased 7.4% in the year.

Net sales of the Consumer Group segment dipped 2.2% to $240.1 million in the quarter and 3.7% to $1.23 billion in the year. The sales declines were attributable to lower volume sales to most of the Group’s retail customers. Consumer Group segment profit decreased $7.7 million in the quarter while increased 12.2% in the year.

Net sales of the Global Finishes Group rose 5.5% to $437.1 million in the quarter when stated in U.S. dollars due to favorable currency translation rate changes. Meanwhile, net sales decreased 11.4% in the year to $1.65 billion when stated in U.S. dollars due primarily to lower paint sales volume and unfavorable currency translation rate changes that were partially offset by acquisitions and selling price increases. The Global Finishes Group’s segment profit decreased by $16.9 million to a loss of $1.1 million in the quarter while it decreased by 57.3% in the year.

Sherwin-Williams repurchased 4.12 million shares of its common stock through open market purchases in the quarter and 9 million shares in the year. As of December 31, 2009, the company had remaining authorization to purchase 10.75 million shares.

Sherwin-Williams anticipates net income per share in the first quarter of 2010 to lie in the range of 30 cents to 40 cents per share compared to 32 cents per share earned in the first quarter. This is below the Zacks Consensus Estimate of 44 cents per share. For the full year 2010, the company expects net income per share to improve to $4.05 to $4.45 per share from $3.78 per share earned in 2009. This is compatible with the Zacks Consensus Estimate of $4.06.

Due to the improved results, Sherwin-Williams’ stock price has soared 7% to $62.85 from $58.92 after the market closed Monday.

Zacks Investment Research

(SHW) Sherwin-Williams Beats Consensus Earnings Estimates

Full-year 2009 earnings were $1.92 per share versus $2.20 in 2008. Excluding non-recurring charges, 2009 earnings were $2.03 per share versus $2.78 in the prior year.

Cost cuts have boosted DuPont’s fourth-quarter pre-tax earnings by about $294 million, which helped the company exceed its full-year cost reduction goal of $1 billion. Raw material, energy and freight costs were 20% lower than the previous-year levels.

However, revenues in the quarter were up 10% year over year to $6.4 billion, reflecting 10% higher volume and 3% lower local prices. Sales grew over 20% for titanium dioxide, electronic materials, performance polymers and seed products. Asia-Pacific sales exceeded pre-recession levels with volume up 34% from last year, reflecting very strong demand in China, Japan, Korea and India.

Sales in the Agriculture & Nutrition segment were up 12% to 1.4 billion, driven by a 9% increase in volumes and a 3% rise in prices. Segment volumes reflect 25% higher seed volume. Seed sales were $465 million. Crop protection product volumes increased 5%, reflecting increased insecticide demand in Latin America.

Sales in the Electronics & Communications segment were up 22% year over year to $582 million. Sales reflect 13% higher volumes and 9% higher prices. Seasonal demand, growth in photovoltaics and a small amount of inventory rebuilding throughout the industry contributed to a strong quarter. Operating profit of $61 million was up $32 million primarily due to significantly improved volume and mix.

Sales in the Performance Chemicals segment increased 9% to $1.3 billion. The sales increase was led by 17% higher volumes, partly offset by lower prices. Volume increases were primarily driven by a recovery in the titanium dioxide market in all regions. Operating profit of $208 million was an improvement of $194 million. The increase primarily reflected lower raw material costs and higher volume.

Sales in the Performance Coatings segment increased 8% to $975 million on higher selling prices. Volumes were 2% lower, reflecting continued industrial market weakness in developed regions, partly offset by higher demand in automotive OEM markets. Operating income of $70 million was up $151 million, reflecting lower raw material costs and aggressive fixed cost reductions.

Performance Materials sales of $1.4 billion increased 20%, principally reflecting 24% higher volumes led by an improvement in automotive, industrial, consumer and electrical markets, with strong volume recovery in all regions, particularly the Asia-Pacific. Segment operating profit for the quarter was $174 million, an improvement of $303 million, reflecting strong volume and variable margin expansion as lower selling prices were more than offset by the benefits of sharply lower raw material costs.

Safety & Protection sales of $759 million posted a decline of 9% year over year — essentially all volume driven. Sales in automotive and consumer markets rebounded, while industrial and law enforcement markets continued to lag. Operating profit of $135 million was an improvement of $48 million. The increase primarily reflected lower raw material costs and fixed cost reductions, partly offset by a lower volume.

DuPont reported full-year free cash flow of $3.4 billion. The company has increased its full-year 2010 earnings guidance to a range of $2.15 to $2.45 per share from its previous guidance of $2.10 to $2.40 per share. The company expects compound annual growth of 10% for top-line and 20% for earnings through 2012. The company also expects pension expenses to be about 10 cents per share, lower than originally anticipated.

Zacks Investment Research

(DD) DuPont EI De Nemours & Co Swings to Profit

There are currently 3.29 million existing houses for sale in the county, down from a peak of 4.58 million in July 2008. So we are seeing some progress if one steps back and looks at the longer-term picture. The other good news is that the median price of a home is now $178,300, which is 1.5% above a year ago. However, care must be used when looking at median prices since they can be influenced by the mix of houses being bought and sold, which is probably the case this time around.

Home Sales Affecting Economic Conditions

It is important to point out that used home sales have relatively little affect on the overall economy. Their effects are mostly indirect, as people tend to redecorate when they move in. However, the economic activity generated by Sherwin Williams (SHW) selling a few more or fewer gallons of paint is pretty minimal relative to the economic activity generated by new home construction and sales.

The prices of existing homes are very important, particularly given the number of people who are already underwater on their mortgages, or are on the edge of becoming so. Being underwater on a house is probably the best single predictor of if the mortgage will continue to be paid, or if it will eventually go into foreclosure.

If someone has positive equity in their house, the foreclosure rate should be zero. Even if the person loses their job or faces some other economic calamity, if the house is worth more than the mortgage, selling the house is still better than having the bank take it. If the mortgage is more (particularly substantially more) even if someone had millions of dollars in the bank, it would still be economically (though there can also be non-economic considerations) irrational to continue paying the mortgage.

People not paying their mortgages is very bad news for the entire mortgage complex, from Fannie Mae (FNM) and Freddie Mac (FRE) to the mortgage insurance firms like MGIC (MTG) to the large banks like Bank of America (BAC).

While the decline was not expected by the consensus of forecasters — who expected existing home sales at a 5.90 million rate — it is not a total shock either. The pending home sales were weak, and much of this month’s decline is probably related to the near expiration of the first-time-buyer tax credit. When it looked like the window was going to close, there was a stampede of buyers trying to slip in under the wire, in effect stealing sales from future months. Come April, the tax credit is again expected to expire, so look for another round of fast buying followed by another hangover this spring.

Breakdown by Region

Why do I think that the mix has played a big role in the median price rising? Well, if we look at the regional data it looks sort of obvious. There are two high-priced regions of the country, the West and the Northeast. There, the median prices are $236,000 and $241,700, respectively. Over the last year, sales in the Northeast are up 21.3% (but down 19.5% from November) while year-over-year sales in the West are up 15.0% (down 4.8% from November).

There are also two lower-priced regions, the Midwest and the South, with median prices in December of $143,200 and $152,000. Over the last year, sales in the South are up 15.5% (roughly in-line with the West) but sales in the Midwest are up only 1.8%. Thus if sales are rising faster in high-priced areas than in low-priced areas, the median price is bound to rise. Relative to November, sales in the South were down 16.3% and in the Midwest they are down a whopping 25.8%.

Disappointing, but Not Shocking

All in all, a disappointing, but not shocking report, given the tax credit hangover. Again, keep in mind that new home sales are vital to the economy (indeed, traditionally the primary locomotive in pulling the economy our of a recession) but used home sales only have a minor overall affect.

The increased months of supply is probably the most distressing aspect of the report since it suggests more pressure on prices in the future. While that would be good for people who want to buy homes, given the leverage in the housing market, declines in nominal values are also highly dangerous to the system.

Over the long term, housing values have to be supported by incomes, and have to be reasonable relative to rents. With record high vacancy rates, rents are under pressure, while incomes are under pressure from 10% unemployment and 17% underemployment rates. If we are able to address the jobs problem, it would go a long way towards solving the housing problem, but there is a big element of “chicken and the egg” to that, given the historical role that new housing plays in economic recoveries. Used houses are a pretty good substitute for new housing, and if there is a glut of existing houses it does not make a lot of sense to build a lot of new ones.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.

Zacks Investment Research

(SHW) Existing Homes Sales Plunge

First quarter revenues of $2,174 million marks a decline of one percent year over year, as lower energy and raw material cost pass-throughs offset higher volumes and a favorable currency. Operating income of $345 million was up 20% from the previous year on improved volumes in Tonnage Gases and Electronics & Performance Materials segments, broad productivity gains across the company and favorable currency impacts. Sequentially, sales improved 2% while operating income gained 5%.

Air Products has consistently improved margins, and is on-track to meet the 17% goal in 2011. Both sequential and year-over-year results benefited from an improving global economy and a lower cost structure.

Merchant Gases sales of $934 million increased 1% as favorable currency was mostly offset by lower volumes, especially in the US and Europe. However, sales volumes were high in Asia. Operating income of $190 million reflected an 11% increase from the prior year, as significantly improved cost performance and favorable currency more than offset weaker volumes. Operating margin in the segment was over 20%.

Tonnage Gases sales of $698 million were down 6% on significantly lower energy and raw material costs. However, sales volumes were up due to rebounding chemical and steel production and new plants onstream. Operating income of $100 million decreased 8% from the prior year primarily on higher planned maintenance costs.

Electronics and Performance Materials sales of $433 million increased 7% on higher volumes and favorable currency, partially offset by price declines. Operating income almost doubled to $48 million from the previous year on improved volumes and productivity.

Equipment and Energy sales of $109 million were down 9% on lower sales activity. Operating income of $8 million increased 1% from the prior year on lower development spending.

Air products expects quarterly earnings to improve throughout 2010 as the global economy, led by Asia, continues on its gradual recovery. Air Products is raising its guidance for fiscal 2010 to $4.75 – $4.95 per share. The company also expects second quarter EPS from continuing operations to be between $1.15 and $1.20 per share.

Air Products and Chemicals, an industrial gas producer, is benefiting from long-term take-or-pay contracts, a consolidated industry structure, a diverse customer base and sustained pricing power. The company’s Electronics and Performance Chemicals business is expected to make a meaningful rebound in 2010 based on solid cyclical recovery in the Asian semiconductor and LCD markets.

Air Products’ aggressive cost cutting and productivity initiatives, combined with portfolio realignment efforts, have helped mitigate fixed cost headwinds. We are also encouraged by the new contract wins across the industrial gas space in the recent months, reflecting a robust growth momentum across the emerging economies in Asia, where the company has a strong presence.

Zacks Investment Research

(APD) Air Products and Chemicals’ Profits Improve

Next week is the heart of the 4Q09 earnings season. There will be a total of 503 firms reporting including 136 members of the S&P 500, and fully one third of the Dow 30. These will include such bellwethers as DuPont (DD), Johnson & Johnson (JNJ), Verizon (VZ), Boeing (BA), Caterpillar (CAT), United Technologies (UTX), 3M (MMM), Altria (MO), Procter & Gamble (PG) and Chevron (CVX). And those are just the Dow names reporting results.

Early in the week, the economic data on housing will be front and center, while the middle of the week brings a Fed meeting, and at the end of the week we get the first look at fourth quarter GDP. All in all, a very busy week coming up.

Monday
• Data on Existing Home Sales in December is released. The pending home sales data suggests a drop, in part due to the first-time buyer tax credit almost expiring, and the hangover caused by people rushing to buy in front of the deadline that was later extended. The consensus is for Sales to have dropped to an Annual rate of 6.00 million from November’s pace of 6.54 million. However, used home sales have little direct impact on economic growth.

Tuesday
• The Case-Schiller Housing Price Index is released for November. The year-over-year decline in housing prices is expected to have slowed to 5.20% from the 7.28% rate in October for the 20 metropolitan areas they track. Sequentially, that implies a small increase in housing prices.
• The Consumer Confidence Index is expected to have dropped slightly in January to 52.9 from 53.3 in December.

Wednesday
• New Home Sales are expected to have increased to a seasonally adjusted annual rate of 370,000 in December from a 355,000 rate in November. New home sales, unlike used home sales, are extremely important for economic growth. An increase would be very nice, but we are still going to be at extremely low absolute levels.
• The Federal Reserve will almost certainly keep the Fed Funds rate in the range between 0 and 0.25%. However, Fed Watchers will carefully dissect the policy statement to see if there is any change in the Fed’s outlook for the economy and for clues about just how long the “extended period of time” is that they will keep rates at “extraordinarily low levels.”

Thursday
• Weekly initial claims for unemployment insurance come out. They rose in the last week, but before that were in a very steep downtrend. Last week there were 482,000 initial claims. Look for the decline to resume. Continuing claims have also been in a steep downtrend of late. However, that is in part due to peole simply exhausting their regular state benefits which run out after 26 weeks. If one factors in the extended claims paid by the Federal government as part of the Stimulus program, claims soared last week. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. Last week regular continuing claims were 4.599 million while extended claims (paid from Federal ARRA funds) were 5.917 million. Make sure to look at both sets of numbers!

Friday
• We get the first look at fourth quarter GDP. In the third quarter, growth was originally estimated to be 3.5% but was revised down sharply in the next two looks at it, finally settling at 2.2% growth. This time out 4.5% is expected, at least for the first look. The details and composition of the report are very important. Growth caused by an inventory rebound is much less significant than if we get a rebound in business fixed investment.
• The inflation gauge built into the GDP report, the Chain Deflator, is expected to show inflation at a 1.3% rate, up from 0.4% in the third quarter. Still a very low absolute level.
• The Chicago Purchasing Managers Index is expected to show growth in the Midwest is continuing in January, but at a slower rate than in December, with a reading of 56.0 expected, down from 58.7. Any reading over 50.0 indicates expansion.
• The University of Michigan Consumer Sentiment index is expected to show a slight rise for January, up to 73.0 from 72.8 in December.

Potential Positive Surprises

Historically, the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter. Some of the companies that have these characteristics include:

Corning (GLW) is expected to report EPS of $0.42, up from $0.13 per share a year ago. Last time out, GLW posted a positive surprise of 7.69% and over the last month the mean estimate for its fourth quarter earnings is up 1.04%. GLW has a Zacks Rank of 1.

MeadWestvaco (MWV) is expected to report EPS before non-recurring items of $0.24, up from $0.10 a year ago  In the 3Q, MVW posted a positive surprise of 85.19% and over the last month, the consensus estimate for its 4Q earnings is up 4.83%.  GE is a Zacks Rank #1 stock.

Estee Lauder (EL) is expected to earn $1.26 per share this year, up from $0.80 a year ago. In the third quarter the company blew estimates out of the water with a massive 150.0% positive surprise. Over the last month, the mean estimate for the 4Q is up 43.27%. EL also holds the coveted Zacks #1 Rank.

Potential Negative Surprises

Mead Johnson (MJN) is expected to post EPS of $0.51 a share, an improvement from a EPS of $0.36 a share a year ago. Last time the company disappointed by 1.85%. For this Zacks #4 Ranked stock, analysts have cut the estimates for this quarter by 1.4% over the last month.

Smith International (SII) is expected to earn $0.09 a share this quarter, down sharply from the $1.00 last year. The company disappointed by 53.33% last time out, and analysts have cut their estimates for this quarter by 6.63% over the last month. The stock holds a Zacks Rank of 4.

FPL Group (FPL) is expected to report EPS of $0.73 down from $0.90 last year. The Florida Utility disappointed by 0.72% last time out and over the past month analysts have cut the estimate for this Zacks #4 Ranked stock by 17.27%.

Earnings Calendar

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.

Zacks Investment Research

(DD) A Very Busy Week Ahead – Earnings Preview

The funds, which were authorized through the Recovery Act’s Advanced Energy Manufacturing Tax Credit program, represent investment tax credits of 30% for facilities that manufacture energy equipment. To be eligible for the tax credit, manufacturers must produce solar, wind, and geothermal energy equipment; fuel cells, microturbines and batteries; electric cars; electric grids; energy conservation technologies; and equipment that capture and sequester carbon dioxide or reduces greenhouse gas emissions. DuPont is currently the world’s second largest chemical company in terms of market capitalization and fourth in terms of revenues. DuPont’s Performance Chemicals segment is targeting a 5 9% revenue growth from 2009 to 2012. By 2012, the company is targeting emerging markets sales in this segment to increase to roughly 35%, compared to 28% in 2008.

We believe DuPont’s titanium dioxide business, which is highly levered to the construction market, should enjoy growing demand from the emerging markets owing to the increase in disposable income and government stimulus programs which will drive growth in the residential and commercial construction markets. DuPont is also looking at improving cost productivity. The company has managed a 4% reduction in fixed costs in this segment in the last 4 years. We maintain our Neutral recommendation on DuPont.

Zacks Investment Research

(DD) EI DuPont de Nemours & Company Receives Grant

Used home sales are recorded at closing — not when the deal is reached — which often results in a delay of as much as two months. The pending home sales report is based on the number of handshakes, and is thus a good leading indicator of the number of closings over the next month or two.

In recent months, used home sales (which are what the report tracks) have been much stronger than new home sales. Historically there had been a stable relationship of about 6 existing home sales for every new home sale; in November, the ratio was 18 to one. However, the tax credit for first-time home buyers (now expanded to include almost all home buyers) has mostly gone to stimulate used home sales.

Used home sales only indirectly stimulate the economy, mostly by raising the incomes of the people working at Coldwell Banker, and because people tend to slap a new coat of paint on the walls after they move in, which is good for firms like Sherwin Williams (SHW). It is new home sales that really stimulate economic activity and have historically helped pull the economy out of recessions.

However, with a glut of housing on the market, in a “big picture” sense it is not a very good idea to be pouring resources into making more houses, even if it would result in more construction jobs and more profits for firms like D.R. Horton (DHI).

How the Economics of Housing Are Shaping Up

For that to make sense, new household formation has to increase, which will stimulate real new demand rather than efforts that simply shift people form being renters to being owners. That just results in higher rental vacancies, which puts downward pressure on rents.

Since renting a home is a good substitute for owning a home, downward pressure on rents will result in downward pressure on housing prices. The tax credits can prop up housing prices in the short term, and the evidence suggests that they have been doing just that.

A large part of the $8000 home-buyer credit is captured by the seller of the house rather than the buyer through a higher price for the house. At the margin, this might be keeping some people from slipping underwater on their mortgages and thus is encouraging them to continue paying. That is obviously also helpful to the holders of those mortgages, like Wells Fargo (WFC) — yet another indirect form of aid to the big banks.

However, unless we are going to make the tax credit permanent, it is only going to delay the price adjustment for houses. To stimulate household formation, we need to see more jobs. A good job will get the 25-year-old out of Mom’s basement and into a place of his own. A steady salary will allow people who are sleeping on friends couches since they got foreclosed on to be able to rent their own place. That is the only real long-term solution to the excess housing inventory we have in the country (other than the bulldozer, which is about the purest form of the “broken-window fallacy” — check your Econ 101 textbook for reference).

What to Expect from the Home-Buyer Credit

For awhile it looked like the tax credit program was going to expire (it was later not only extended but expanded). That caused a rush of people to buying houses before the deadline. Now we are seeing the hangover from that.

Under the current version, buyers will have to have a contract in place by 4/30/10 and close by 6/30/10 to get the tax credit. Look for another surge just before the deadline, and another slump right afterwards this spring.

“Cash for Clunkers” Better Than “Cash for Castles”

I have thus been skeptical about the “Cash for Castles” program, even though I was in favor of the “Cash for clunkers” program. The latter resulted almost entirely in the purchase of new cars — which results in a lot of economic activity, not just the sale of used cars, which, like used houses, does little to help the overall economy. Yes, it helps out used car dealers, just as the “Cash for Castles” program is helping out used house dealers (aka realtors), but beyond that, used car sales don’t increase GDP.

Yes, there was a bit of the broken-window fallacy to “Cash for Clunkers,” since some still-running used cars were taken off the road, but that is offset by the improvements in safety and fuel efficiency of a new car versus a 10-year-old one. The direct economic effects of the “Cash for Clunkers” program were dramatic.

Besides, we get some of that money back to the extent it helps out General Motors and Chrysler, because you, dear taxpayers, are major shareholders in both of them. Even to the extent it helps out Ford (F) it indirectly helps, since the workers there (and at the suppliers) will be back at work, and paying taxes rather than collecting unemployment benefits. Thus, on a dynamic basis, the cost of the program is probably far less than the $3 billion price tag.

“Cash for castles” is simply going, for the most part, to people who would have moved anyway, and does not have any of those ancillary benefits. Besides, home owners, as a group, have higher incomes and more wealth than do the population as a whole (i.e. homeowners plus renters). So why are we taxing renters to subsidize homeowners — on top of the MASSIVE subsidies we already provide to them in the form of mortgage interest deductions?

Since used home sales are not that important to the economy, I would rate this report, while disappointing, to be only a minor negative.

Zacks Investment Research

(SHW) Pending Home Sales Tumble According to National Association of Realtors

Company Description

Eastman Chemical manufactures chemicals, fibers and plastics materials from 11 manufacturing facilities around the world.

The company has 5 business segments: Coatings, Adhesives, Specialty Polymers and Inks; Fibers; Performance Polymers; Performance Chemicals and Intermediates; and Specialty Plastics.

Eastman Updated 2009 Guidance

On Nov 17, Eastman Chemical amended its earnings per share guidance for 2009 saying it expected about $3.50 per share excluding charges. The company still expects to deliver 20% annual earnings growth from 2009 through the recovery.

Given the guidance, the 2009 Zacks Consensus Estimate jumped to $3.50 per share from $3.22 in the last 2 months.

Analysts are more bullish about 2010. Earnings are expected to grow 22% to $4.29 from $3.95 per share in 2010.

Eastman Chemical is scheduled to report fourth quarter results on Jan 28.

Eastman Surprised on the Third Quarter By 22.12%

On Oct 22, Eastman Chemical reported its third quarter results and beat the Zacks Consensus by 25 cents. It was the third straight earnings surprise.

Earnings per share were $1.38 compared to the Zacks Consensus of $1.13 per share. This also improved on the $1.33 per share earned in the third quarter of 2008.

Sales, however, fell 21% if you exclude various items revenue in third quarter. Sales were $1.3 billion, down from $1.8 billion in the third quarter of 2008. All operating segments were lower in the quarter due to lower selling prices and a 4% decline in sales volume.

Cash generation remains a priority for Eastman. The company generated $200 million in free cash flow in the third quarter. Eastman Chemical currently pays a dividend, with a yield of 2.90%.

Value Fundamentals

Eastman Chemical is a Zacks #1 Rank (strong buy) stock. It has a price-to-book of 2.66. Eastman also has a strong 5-year return on equity (ROE) of 22.46%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Zacks Investment Research

(EMN) Eastman Chemical Company – Strong ROE of 22.46%

Eastman expects to record non-cash charges of about $150 million to $180 million in the fourth quarter of 2009 due to the shutdown of the operations in the project. Yet, Eastman plans to continue to explore industrial gasification growth opportunities. Eastman has several projects involving coal gasification in development.

The company expects over time to increase its product volume derived from gasification-based raw materials to 50% from its current 20%. One of Eastman’s strategic plans is to strengthen its polyethylene terephthalate (PET) product lines. Recently, it has built 350,000 tons per year PET manufacturing facility based on its IntegRex technology in North America.

The company is also rationalizing 350,000 tons per year of its higher-cost PET capacity at its South Carolina, US, facility. Eastman makes chemicals, plastics and fibers used in products ranging from paint to furniture.

The company provides key differentiated coatings, adhesives and specialty plastics products, and is one of the world’s largest producers of PET polymers for packaging and a major supplier of cellulose acetate fibers. We believe Eastman has a solid foundation of businesses that will provide strong earnings, going forward. We maintain our Outperform recommendation on the stock.

Zacks Investment Research

(EMN) Eastman Chemical Company Discontinues Project

As a result, the division has reset its plans to commercialize its Optimum GAT corn and will not have controlled releases in 2010 and 2011 in North America. DuPont plans to intensify its research efforts for the corn trait and work toward commercialization. The company is hoping to release its Optimum GAT soybeans two to three years later than the anticipated 2011 introduction due to changes in regulatory policy in key import markets.

The company said it is pursuing the regulatory approvals, and has already received clearance in the U.S. and Canada. DuPont has however affirmed a 15% compound annual earnings growth rate through 2013 at its agriculture and nutrition business segment, the largest of the company’s five segments, based on year-to-date net sales.

DuPont has been focusing on aggressive cost cutting. The company plans to gain about $1 billion in fixed cost productivity and $1 billion in working capital productivity during 2010-2012. A focus on emerging markets and strong performance in the Agriculture & Nutrition segment will likely generate about 10% growth in the top line during 2009-2012. DuPont hopes to grow earnings at 20% between 2009 and 2012.

However, the U.S. housing market slump has impacted products, such as Corian and Tyvek. Weak North American automotive and construction markets have hurt its Coatings business. Pharmaceutical royalties are also expected to decline after the expiry of patents in 2010. Hence, we have a Neutral rating on the stock.

Zacks Investment Research

(DD) EI DuPont de Nemours & Company Delays Product Launch

The addition of Hyland Seeds will further expand Dow AgroSciences’ current seeds business as the company anticipates the introduction of SmartStax in 2010 and Dow AgroSciences Herbicide Tolerant Trait Technology in corn in 2012. Under the terms of the agreement, Dow AgroSciences will acquire the Hyland brand and the sales, marketing and administrative functions.

The acquisition also includes germplasm, the R&D program with three R&D sites and the corn production facility. Further details of the agreement were not disclosed. Joint ventures and acquisitions are an integral part of Dow’s growth strategy. These provide access to potential markets, new technologies and feedstock, while at the same time lowering capital investment and risk.

Dow Chemical has become the world’s leading specialty chemicals and advanced materials company after acquiring Rohm & Haas for $16.3 billion. Management intends to place Rohm & Haas, along with some specialty chemical businesses, in a new Advanced Materials division.

The acquisition has increased Dow’s position in the specialty chemicals market by broadening its product range in paints, coatings and electronic materials. This new division expects to achieve annual sales of $14.0 billion and cost synergies of $1.3 billion.

Dow’s earnings of 24 cents in the third quarter of 2009 (significantly better than both the Zacks Consensus Estimate of 9 cents and 5 cents reported in the previous quarter) were driven by cost reduction and asset sales. The company achieved cost synergies of over $1 billion in the first nine months of 2009.

The Rohm & Haas acquisition, a positive for Dow, is expected to consolidate higher margin and higher growth specialty businesses and reduce volatility in earnings and cash flow, going forward. We have upgraded Dow Chemical from Neutral to Outperform.

Zacks Investment Research

(DOW) Dow Chemical Company Expands AgroSciences

The Zacks Consensus Estimate is pegged at $3.22 for 2009 and at 93 cents for the fourth quarter. Recently, Eastman’s close peers, Dow Chemical Company (DOW) and Dupont (DD) have also predicted strong growth in earnings.

Eastman stands to benefit from its business restructuring and cost-cutting measures, which are expected to result in cost savings of more than $200 million for the full year 2009. Eastman’s earnings of $1.38 per share in the third quarter of 2009 had bettered the Zacks Consensus Estimate of $1.13 per share helped by lower costs.

The company managed margins by reducing its operating costs. However, lower selling prices and volumes across all major segments resulted in a 21% year-over-year fall in Eastman’s top line of $1.3 billion for the quarter. Eastman’s core businesses, including Coatings, Adhesives, Specialty Polymers and Inks, Fibers, Performance Chemicals and Intermediates as well as Specialty Plastics suffered on weak demand from the automotive, building and construction, and packaging markets.

Tennessee-based Eastman, which makes chemicals, plastics and fibers used in everything from paints to furniture, expects to benefit from a better product mix and cost reduction measures in the fourth quarter of 2009. However, the company expects volatility in raw material and energy costs and a decline in sales volume due to normal seasonality having a negative affect on the upcoming quarter.

Eastman expects the growth in earnings investments in sustainable products and emerging markets. The company is eyeing the cigarettes market, which is witnessing high growth on the back of strong demand from Russia and China. Strong demand for cigarettes will help earnings in the company’s fibers unit, which also produces base materials for clothing. Eastman produces acetate tow, used to make filters for cigarettes. In the Performance Polymer segment, Eastman is expecting operating earnings of $25 to $50 million by monetizing IntegRex technology investment through licensing.

This apart, Eastman has about $117 million remaining on a share repurchase allocation, and intends to use that up in the next few years. Eastman is more open now to acquisitions or joint ventures than it had previously been, due in part to a new growth strategy. The company recently launched a $250 million note offering for fund growth projects.

Zacks Investment Research

(EMN) Eastman Chemical Company Boosts Guidance

The Rohm and Haas acquisition is proving to be positive for Dow, which is expected to consolidate higher-margin and higher-growth specialty businesses and reduce volatility in earnings and cash flow, going forward. Dow is aiming to nearly double margins and quadruple earnings per share while reducing debt in the coming years.

The company has predicted earnings of $4 to $4.50 per share in 2012 (up from last year’s $1.82) to be achieved through a mix of growth synergies as well as restructuring and cost synergies. The company had achieved cost synergies of over $1 billion in the first nine months of 2009. Earnings of 24 cents in the third quarter of 2009 (significantly better than the Zacks Consensus Estimate of 9 cents and 5 cents reported in the previous quarter) were primarily driven by cost reduction and asset sales.

The new business structure is expected to drive Dow’s revenue by more than 10% per annum. Dow expects a greater focus on emerging markets including Southeast Asia, India, Latin America, China and Eastern Europe to contribute about 35% to total revenues in 2012. Management has also projected EBITDA margin expansion from 12% in the recent past to 20% over time.

Recently, Dow divested its Powder Coatings business to Akzo Nobel N.V. (AKZOY) – a leading producer of paints and coatings, based in Amsterdam, The Netherlands – for an undisclosed amount. Including this deal, Dow stated its divestiture activities to be on target to yield more than $3.5 billion in gross proceeds. The company is also planning to divest its Styron business next by the first quarter of 2010. As a part of its restructuring plan, Dow plans to divest 10 to 15 other businesses, which range in size between $100 million and $300 million in annual revenue.

Dow is also likely to benefit from cutting its stake in its basic chemicals business as part of its plan to focus on its more profitable Specialty Chemicals business. Recently, Dow had announced that its subsidiary Kow Kokam LLC acquired nearly all assets of lithium rechargeable battery maker Kokam America Inc. The company also announced the transfer to Dow of collective assets from High Power Lithium, a company focused on the development of technology for use in all lithium ion batter applications. Terms of neither agreement were disclosed.

We have upgraded Dow Chemical Company from Neutral to Outperform.

Zacks Investment Research

($DOW) Dow Chemical Gearing Up to Divest

Dow plans to use the proceeds from the transaction to repay debt, consistent with the company’s de-leveraging plan. Dow plans to raise about $3.5 billion by divesting its non-core assets. For the Chemicals group Akzo Nobel, the deal will bring upgraded technological expertise and significant synergy potential for the Powder Coatings business, as well as enhance the company’s position in the U.S.

The powder coatings activities were purchased by Dow earlier this year as part of its acquisition of Rohm & Haas. Dow Chemical has become the world’s leading specialty chemicals and advanced materials company after acquiring Rohm and Haas for $16.3 billion. The acquisition appears positive for Dow, which is expected to consolidate higher margin and higher growth specialty businesses and reduce volatility in earnings and cash flow, going forward.

Joint ventures and acquisitions are an integral part of Dow’s growth strategy. These provide access to potential markets, new technologies and feedstock, at the same time lowering capital investment and risk. Management intends to place Rohm & Haas, along with some specialty chemical businesses, in a new Advanced Materials division. The acquisition has increased Dow’s position in the Specialty Chemicals market by broadening its product range in paints, coatings and electronic materials. This new division expects to achieve annual sales of $14 billion and cost synergies of $1.3 billion. Dow’s current business profile has an anticipated growth rate of about 4% for the period 2009?2012.

The Rohm & Haas portfolio, on the other hand, is rooted in faster growing segments with an expected growth rate ranging between 5% and 9%. On a consolidated basis, the growth rate of the combined portfolio over this period is expected to be within 5% to 7%. The merger would be neutral to earnings in the second half of 2009. However, it is likely to boost Dow’s earnings by 5% in 2010 and 13% in 2011.

Dow is targeting faster-growing regions. The company earns two-thirds of its income from outside the U.S. Growth in emerging economies have been especially rapid, generating almost 28% of Dow’s revenues. Growth is 17% in Europe, where sales are $19.6 billion; 15% in the Asia-Pacific, where sales are $6.2 billion; and 14% in Latin America, where sales are $5.8 billion. Meanwhile, sales growth in Greater China and Eastern Europe were 24% and 30%, respectively.

We maintain our Outperform recommendation on the stock.

Zacks Investment Research

(DOW) Dow Chemical Company Divests Business

Wednesday, November 11, 2009: Issue #1135

Investing in the biotech sector can be risky – no doubt about that.

But you know what? There are a lot of ways to make money from biotech stocks, too. If you know what to look for, that is.

Two obvious examples include:

• Picking the company behind the next breakthrough drug for cancer or Alzheimer’s.
• Digging out companies that are likely takeover targets (something my colleague Louis Basenese does expertly in his Takeover Trader service), or landing lucrative drug partnership deals, which send the stocks higher.

But there’s another excellent way that shorter-term investors can grab gains and profit from biotech sector…

Follow the Biotech Sector Conference Buzz

Throughout the year, the biotech sector holds many key conferences where biotech companies make important presentations. If you keep your ear to the ground, you can adopt a proven investment strategy: profiting from the news before it breaks.

Now, there’s obviously no guarantee that the stocks in question will rise, or even that the data they present will be positive. But very often, their stocks rise in the days or weeks before these conferences, in anticipation of good news.

Here are a few important conferences to keep an eye on – and some companies that could enjoy some positive press from them…

Three Conferences & Five Biotech Stocks for Your Watch List

On November 15, the AACR-NCI-EORTC Molecular Targets and Cancer Therapeutics conference (surely a leading candidate for the Wordiest Conference Of the Year Award) starts in Boston.

A few companies that will present include:

• Immunogen (Nasdaq: IMGN): The company presents on November 16 and 17 and will include data on its cancer drug that treats solid tumors.

• SuperGen (Nasdaq: SUPG): It will be a busy few days for the company’s executives, as they’re set to make seven presentations on November 16-18, including one on a drug that increases tumor cells’ sensitivity to chemotherapy.

• Poniard Pharmaceuticals (Nasdaq: PARD): It will make two presentations on November 17, releasing new data for its chemotherapy drug, picoplaptin.

This conference isn’t one of the more major ones, but keep an eye on all of these companies, as it’s always important when new clinical trial data is announced. Watch how their respective stocks behave in the days before, during and after the conference presentations.

You’ll also want to mark your calendar for the American Society of Hematology (ASH) Annual Meeting and Exposition from December 5-8. This conference addresses various cancers of the blood and among the presenters will be biotech heavyweight, Celgene (Nasdaq: CELG), plus Ariad Pharmaceuticals (Nasdaq: ARIA).

The JP Morgan (NYSE: JPM) Healthcare Conference from January 11-14, 2010 is the largest investor conference of the year in the healthcare sector.

The week is jam-packed with healthcare companies revealing their stories and updates to the very top institutional investors. It’s become an increasingly difficult conference to get into, with even some of JP Morgan’s customers unable to get an invitation.

Not me, though! I’ll be there, reporting on all the breaking news and sitting down for one-on-one meetings with the CEOs of companies that I’m interested in. Stay tuned for my reports in January.

Why You Should Invest in the Biotech Sector Today

And when it comes to investing in biotech, without a doubt, the most important conference of the year is the annual meeting of the American Society of Clinical Oncologists (ASCO).

This one is a way off, taking place from June 4-8, 2010. Almost all of the major biotech companies working on cancer treatments present at ASCO, with many revealing new data for the first time. Biotech stocks often make a move higher prior to ASCO.

Here’s the thing, though: The ASCO conference unofficially marks the end of the biotech “season,” which begins with the JP Morgan conference and ends with ASCO. Traditionally, biotech stocks do better over the first half of the year, with the final push higher leading into ASCO.

So if you subscribe to the “sell in May and go away” theory (which says you should own stocks from November through May), the biotech conference calendar actually fits in very nicely.

Even if you’re a longer-term investor, rather than a shorter-term trader, it’s important to understand the forces that may be at work when you’re looking at a stock. Knowing when these conferences are – and the potential impact on prices they have – can help you make better decisions when it comes to timing your purchases or sales.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

View original at: Investment U

(ASH) Investing in the Biotech Sector: Here’s An Easy Way to Profit from Biotech Stocks

On average, DuPont expects to deliver almost 20% year-over-year growth in earnings per share between 2009 and 2012. Despite an expected decline in pharmaceutical royalties after expiry of patents in 2010, DuPont expects to grow earnings between $2.10 and $2.40 per share in the year. The company has also reaffirmed its full-year 2009 earnings outlook of $1.95 to $2.05 per share, excluding significant items, which are estimated to be $0.15 per share for full-year 2009 or $1.80 to $1.90 per share on a reported basis. It had previously forecasted earnings of $1.70 to $2.10 a share. DuPont expects improving demand in key markets, as well as lower raw material costs.

For the full year 2009, the Zacks Consensus Estimate is pegged at $2.10, slightly higher than management’s guidance. For the fourth quarter of the current year, Zacks is expecting DuPont to flash earnings of 41 cents. DuPont reported third-quarter 2009 earnings of 45 cents, beating the Zacks Consensus Estimate of 33 cents, helped by significant cost cuts and lower raw material, energy and freight expenses.

In the Agriculture & Nutrition (Pioneer Hi-Bred, Crop Protection, Nutrition & Health) business, DuPont expects to generate more than $2 billion in top-line growth through 2012 by growing North America corn and soya volumes and market share. The company expects margins to improve in the Electronics & Communications business. The company anticipates top-line growth by leveraging an established leadership position in photovoltaics and displays; introducing key products and capitalizing on recovery opportunities and providing operational discipline with a lean business structure.

In the Performance Coatings business, DuPont plans to restore pre-tax operating margins to low double digits by 2012 by delivering $300 million in fixed and variable cost productivity, while expanding and leveraging its leadership in refinish products and growing the portfolio in emerging markets. For Performance Materials (Performance Polymers and Packaging & Industrial Polymers) business, the company plans to focus on emerging markets by delivering lightweight and renewably-sourced materials to meet escalating global demands and continuing intense focus on productivity.

In the Safety & Protection (Protection Technologies, Building Innovations, Safety Resources) segment, DuPont expects to generate 12%-16% annual revenue growth by launching new science-based products, including lighter weight and next-generation advanced materials.

In the Performance Chemicals (Chemicals & Fluoroproducts, Titanium Technologies) business, DuPont will focus on cost productivity improvement; accelerating globalization to capture emerging markets growth. The company has merged two businesses in this segment (DuPont Chemical Solutions Enterprise and DuPont Fluoroproducts) into a single powerhouse unit named DuPont Chemicals & Fluoroproducts – accelerating growth by expanding global market access. The merger further streamlines the company from 14 to 13 businesses.

Cost cuts have boosted DuPont’s third-quarter pretax earnings by about $300 million, bringing cost reductions year-to-date to $900 million. The company’s full-year goal is $1 billion. Raw material, energy and freight costs were 12% lower than the previous year levels, and DuPont expects these costs for full year 2009 to be about 5% to 6 % lower than 2008. All major chemical makers, including Dow Chemical Company (DOW), are focusing on cutting expenses. Dow has cut down on more than $375 million of expenses in the first six months of 2009 and expects synergies of $1.3 billion in the year.

DuPont is currently the world’s second-largest chemical company in terms of market capitalization, and the fourth in terms of revenues. We maintain our Neutral recommendation on DuPont.

Zacks Investment Research
View original at: Zacks.com News Feed

($DD) Ei Dupont De Nemours Reaffirms Earnings Outlook

The new specialty amines plant is designed to manufacture many of the amine chemistries marketed by the business globally. Air Products already operates two large air separation plants. Air Products focuses on China for growth as the country seems to be having a strong and potential market as well as industries, such as construction, coatings and automobile production.

The new plant has significantly strengthened the supply chain capabilities of Air Products’ Performance Materials business in China and throughout Asia. Other strategic capabilities that the company has built for its Performance Materials business include a technology center in Shanghai’s Zhangjiang Industrial Park, a triethylenediamine manufacturing facility for polyurethane additives in Changzhou, warehouses in Changzhou, Shanghai, Guangzhou and Nanjing.

The plant has also enhanced Air Products’ ability to supply differentiated products. The initial focus will be on several performance-oriented products marketed by Air Products’ epoxy additive and polyurethane additive product lines, including the Polycat and Dabco series of amine catalysts, and Ancamine, Ancamide and Sunmide series of epoxy curing agents used in diverse industries, such as coatings, inks, adhesives, construction, appliance and automotive.

This apart, Air Products also plans to build a new world-scale air separation unit (ASU) at its La Porte, Texas industrial gases facility. The energy efficient ASU will replace older assets at the site and provide benefits to customers through higher-reliability pipeline of oxygen and nitrogen supply, and enhanced production of merchant and electronics products including argon and xenon. The new ASU is to be on-stream in October 2011.

The ASU at La Porte will serve customers across Air Products’ three major business areas of Tonnage Gases, Merchant Gases and Electronics and increase supply security and reliability. The company expects the ASU to deliver significant productivity gains through decreased energy consumption and operating costs.

Air Products also plans to purchase and operate four existing air separation units to supply industrial gases to Xingtai Iron and Steel Corp., Ltd., one of China’s largest specialty steel manufacturers located in Hebei province, China. Air Products is the second largest industrial gas supplier in North America and the fourth largest in the world. The company serves customers in the industrial, energy, technology and healthcare markets worldwide.

Zacks Investment Research
View original at: Zacks.com News Feed

(APD) Air Products and Chemicals Inc Focuses on China

Weak pricing and lower volumes, especially for Acetyl Intermediates and Industrial Specialties products on weak global demand led to net sales of $1.3 billion in the quarter, down 28% from the same period last year. The Acetyl Intermediates segment primarily serves customers in the chemical, paint and adhesives industries.

Consumer Specialties: Net sales slid 8% to $271 million in the quarter, driven by lower sales volumes primarily in North America and Europe and negative currency impacts. However, higher pricing, lower raw material and energy costs and benefits from the company’s fixed cost reduction efforts drove a 24% rise in operating profit to $52 million. Consumer Specialties continued to deliver strong performance as higher pricing and Acetate Products venture growth in China — as well as lower overall costs — offset modest volume declines resulting from softer product demand.

Advanced Engineered Materials: Significantly lower volumes in many of its end-use industries continued to impact year-over-year performance in the segment. Net sales decreased 19% to $220 million in the quarter, primarily driven by lower volumes in the U.S. and European automotive markets, as well as other consumer and durable goods segments. Operating profits improved 61% to $21 million on lower raw material and energy costs.

Industrial Specialties: Net sales of $236 million reflected a 38% year over year decline driven by lower volumes associated with softer demand for PVOH. The decrease in net sales was also attributed to lower pricing and the negative impacts of currency. However, volumes increased sequentially on improved demand in North America, Europe and Asia, particularly in the company’s emulsions business. Operating profit more than doubled to $44 million compared with $18 million in the same period last year. Margins expanded in the core businesses, following lower raw material costs and the benefits of the company’s fixed spending reduction efforts.

Acetyl Intermediates: Net sales declined 37% to $666 million in the quarter compared with $1,067 million in the same period last year, primarily due to lower pricing and modestly lower volumes. Lower year-over-year industry utilization rates caused by reduced global demand, coupled with lower raw material costs, drove the pricing decline. The company’s operating rates for its acetic acid facilities remained at high levels during the quarter; however, volumes in vinyl acetate monomer and other derivative products were lower, reflecting the reduced demand.

Industry demand in Asia has continued to increase sequentially from its lowest levels in the fourth quarter of 2008. Demand in Europe and the Americas remained weak in comparison, but showed modest improvement during the same period.

Cash and cash equivalents at the end of the quarter were $1.3 billion compared with $548 million at the end of the third quarter of 2008. In 2009, the company received net cash of $168 million from the sale of the PVOH business and an advance payment of $412 million related to the relocation of Ticona’s business in Kelsterbach, Germany. Celanese reduced its net debt at the end of the reported quarter to $2.3 billion from $3 billion last year. However, debt to capital ratio of above 80% is our major concern.

Going forward, Celanese plans to reduce fixed spending by $100 million in 2010, as it streamlines manufacturing operations and administrative functions, including the closure of its facility in Pardies, France. The company also expects volumes to increase across all of its businesses and an adjusted tax rate of below 20%. Celanese expects these changes to add $1 to earnings per share next year.

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(CE) Celanese Soundly Beats the Consensus Estimates

The company achieved cost synergies of over $1 billion in the first nine months of 2009. The Rohm and Haas acquisition is a positive for Dow, which is expected to consolidate higher margin and higher growth specialty businesses and reduce volatility in earnings and cash flow going forward.

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(DOW) Dow Chemical Company – Bull of the Day

Revenues plummeted 13% year over year to $713.3 million on lower volumes. However, volumes improved sequentially and are expected to improve further in the next quarter.

Revenue of $268.3 million in Agricultural Products inched 2% past the previous year with improving sales in Brazil. Segment earnings of $59.2 million increased 34% from the year-ago quarter, reflecting the sales growth in Brazil, lower raw material costs and favorable currency comparisons relative to the prior-year quarter.

Revenue in Specialty Chemicals was $191.7 million, down 3% year over year on lower lithium sales. Segment earnings of $40.9 million were 14% higher than the year-ago quarter, driven by revenue gains in BioPolymer, but partially offset by lower lithium volumes.

Revenue in Industrial Chemicals of $254.4 million declined 29% from the prior-year quarter, as lower volumes across the segment. Segment earnings of $20.7 million were 69% lower than the year-ago quarter.

FMC Corporation reported cash and cash equivalents of $59.9 million of Sep 30, 2009. Debt totaled $541.9 million, 9% lower than $592.9 reported as of Dec 31, 2009. However, FMC’s net cash position (long term debt including current portion less cash) is a deficit of $6.6 per share, which might increase its leverage in a scenario of weak demand.

Outlook

For the full year 2009, FMC expects earnings before restructuring and other income and charges of $4.05 to $4.15 per diluted share. For the fourth quarter of 2009, the company expects earnings before restructuring and other income and charges of 85 cents to 95 cents per diluted share.

Sequentially, the company expects earnings to increase 35% to 40% in Agricultural Products, driven by improved market conditions in Brazil, lower raw material costs and further manufacturing productivity improvements. In Specialty Chemicals, earnings are expected to go up 20% with continued strong performance in BioPolymer. In Industrial Chemicals, earnings are expected to be down 30% to 40% on reduced selling prices in phosphates and modestly lower volumes across the segment.

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(FMC) FMC Corporation’s Earnings Match Estimates

Coatings, Adhesives, Specialty Polymers and Inks: An 18% year over year drop in sales in the segment led to lower sales volume due to reduced demand from the automotive, building and construction, and packaging markets. However, cost reduction increased operating earnings by 53% year over year.

Fibers: Revenues declined 5% on lower sales volume primarily for acetyl chemical products. Operating earnings, however, increased 21% on higher selling prices and cost reduction actions partially.

Performance Chemicals and Intermediates: Sales revenue declined 30% due to lower selling prices. Operating earnings also halved to $33 million in the quarter.

Performance Polymers: Sales declined 27% due to lower selling prices, particularly for paraxylene, while sales volume remained flat year over year. Operating losses amounted to $10 million in the quarter, compared with earnings of $1 million in third quarter 2008.

Specialty Plastics: Sales revenue declined 21% due to weak demand for plastic resins, including copolyester products sold to the consumer and durable goods markets. Operating earnings increased modestly to $13 million in the quarter from $6 million year over year on lower costs.

Outlook

Eastman Chemical, which makes chemicals, plastics and fibers used in everything from paints to furniture, expects to benefit from a better product mix and cost reduction measures in the fourth quarter of 2009. However, the company expects volatility in raw material and energy costs and a decline in sales volume due to normal seasonality having a negative affect on the upcoming quarter.

Eastman expects fourth-quarter 2009 earnings per share to decline sequentially but to be slightly above market expectations of 85 cents per share.

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(EMN) Eastman Chemical Company’s Profits Improve

However, year over year, earnings declined 60% from 59 cents. Structural cost reductions resulted in savings of more than $380 million in the quarter and more than $1 billion year to date. Dow reduced its feedstock and energy costs by 46% year over year. Last month, Dow had sold a Dutch subsidiary for $457 million and a Malaysian business for $328 million.

Dow reported sales of $12.0 billion for the quarter, down 22% year-over-year on lower volumes (9%) and prices (23%). However, sales improved 6% sequentially with a 6% rise in prices and a 3% increase in volumes. Sequentially, Dow’s global operating rate improved 3% to 78%, driven by volume growth in key operating segments in China, Brazil and India, Middle East & Africa and favorable feedstock and energy costs in North America relative to other geographical regions which, coupled with Dow’s feedstock flexibility, enabled increased exports.

Electronic and Specialty Materials
Sales in this segment declined 15% to $1.3 billion driven by a 9% decline in volumes and a 6% decline in prices. Volumes declined due to weak electronic demand on the back of global cutbacks in consumer spending.

Results in Specialty Materials were down on lower demand in key applications such as home water softening, industrial production and weaker year-over-year demand in Dow Wolff Cellulosics. However, sales increased 8% sequentially, with a 7% increase in volumes and a 1% rise in prices.

Coatings and Infrastructure
Sales in the segment were down 22% to $1.3 billion, driven by a 9% decline in volumes and a 13% decline in prices. Weak year-over-year business conditions in the global building and construction industry affected demand for architectural paints and industrial coatings. Adhesives and Functional Polymers sales were down as well, principally due to lower demand for adhesive tapes, paper labels and adhesives used in textile applications. Sales were up 7% sequentially on a 4% rise in volumes and a 3% rise in prices.

Health and Agricultural Sciences
Revenues slipped 20% in this segment to $796 million on a 9% decrease in volumes and an 11% fall in prices. Agricultural Chemicals sales suffered from lower crop commodity prices, which caused farmers to reduce crop chemical applications, deplete existing inventories and delaying purchases. On a sequential basis, sales were down 34%, reflecting a 2% decline in price along with the typical seasonal decline in volume.

Performance Systems
Segmental sales were $1.5 billion, down 29% with volumes and prices declining 13% and 16%, respectively. Declines were driven by the global economic slowdown in the automotive, construction and housing industries.

In Automotive Systems, original equipment manufacturers in North America and Europe decreased production. Sales increased 5% sequentially, driven by a 3% increase in price and a 2% gain in volume.

Performance Products
Sales in the segment were $2.4 billion, down 33% year-over-year. Volumes declined 8% while prices declined 25%. The global economic downturn drove the decline, despite governmental stimulus programs. On a sequential basis, sales in the Performance Products segment rose 16%. Volume increased 10% and price was up 6%.

Basic Plastics
Sales in Basic Plastics segment were $2.6 billion, down 32%. Volumes were down 1% while prices declined 33%. Volumes were significantly down in Europe due to production disruption at two of Dow’s polypropylene manufacturing facilities in Germany. On a sequential basis, sales in the Basic Plastics segment rose 11%, as a 2% decline in volume was more than offset by a 13% increase in price.

Basic Chemicals
Sales in Basic Chemicals segment were $568 million, down 49% year-over-year on the back of a 36% decline in prices and a 13% fall in volumes. Caustic soda prices were dramatically lower than year-ago levels as a result of weak alumina, chemical processing and pulp and paper industries. Vinyl chloride monomer (VCM) sales continued to be impacted by weak year-over-year infrastructure spending in the US, tight credit and contraction in the housing sector. On a sequential basis, sales in the Basic Chemicals segment fell 3%, as price declined 2% and volume decreased 1%.

Dow has started benefiting from the Rohm and Haas acquisition concluded last quarter. The acquisition will consolidate higher margin and higher growth specialty businesses and reduce volatility in both earnings and cash flow. The acquisition is expected to help top-line growth and improve margins. . For the rest of 2009, Dow anticipates strong growth in the Asia-Pacific region, especially China, where domestic stimulus programs have created demand.

We upgrade Dow from Neutral to Outperform.

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(DOW) Dow Chemical Company Gears Up in Third Quarter

Revenues in the quarter tumbled 22% from the previous year to $2.1 billion, reflecting a negative impact of lower energy and raw material cost pass-throughs (12%) and unfavorable currency (3%). However, sales rose 7.7% sequentially, following demand from chemical makers, oil refiners and steel fabricators.

Merchant Gases Segment: Sales under the segment decreased 15% to $932 million on weak demand across manufacturing end-markets globally, including electronics and metals, besides the effect of unfavorable currency. Sequentially, sales increased 6% on improved volumes in the last couple of months.

Tonnage Gases segment: Sales of $640 million in the segment were down 32% from the prior year on lower energy and raw material cost pass-throughs.

However, sales and volumes were up 13% sequentially on stronger demand from chemical, refinery and steel customers.

Electronics and Performance Materials segment: Sales of $434 million declined 22%, primarily on lower volumes and pricing in Electronics. While sales in the Electronics division were down 27% year-on-year, it increased 3% sequentially due to improved customer operating rates. Performance Materials volumes improved 9% sequentially, reflecting seasonal improvement and stronger Asia sales, but declined 10% from the prior year on weaker demand from coatings, autos, housing and other end markets.

Equipment and Energy segment: Sales of $123 million in the segment showed a decline of 3% from the prior year. The company saw higher energy development cost in the segment, which impacted sales for the quarter.

Air Products, which manufactures atmospheric gases, process and specialty gases, is focusing on cost reduction. For the full year 2009, the company reported charges of about $298.2 million on divesting unprofitable business. The company has divested its Norwegian inert gas generation business. Earlier this quarter, it had shed its polyurethane prepolymers business to COIM USA Inc., a fully owned subsidiary of global polyurethane chemicals producer, COIM SpA. Recently, Air Products sold off more than half of its remaining U.S.Healthcare business to OptionCare Enterprises Inc., a subsidiary of Walgreen Co. and Landauer-Metropolitan Inc. for cash proceeds of $38.1 million. Through a series of transactions with Rotech Healthcare Inc. and Walgreen, the company sold its remaining U.S. Healthcare business for cash proceeds of $12.1 million.

Outlook
For the first quarter of fiscal 2010, Air Products expects earnings per share of $1.07 to $1.15. For the full year 2010, the company anticipates earnings in the range of $4.65 to $4.90 per share, representing a growth of 15% to 21% year-on-year. The company expects capital spending in fiscal 2010 to be between $1.3 and $1.5 billion, almost at par with fiscal 2009.

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(APD) Air Products Chemicals Inc Delivers Disappointing 2009 Results

Cost reduction helped the modest improvement in profits. In the first nine months of 2009, the company reduced its selling, general and administrative expenses by nearly $94 million, and improved its working capital ratio to 12.5% from 13% last year.

Net sales in the quarter declined 64% year over year to $2 billion. Weak demand in the residential and commercial architectural paint market and lower sales in industrial coatings and non-paint categories lead to a 13.5% decrease in net sales in the Paint Stores segment to $1.22 billion.

Net sales of the Consumer Group decreased 7.1% to $330.5 million in the quarter, primarily due to lower demand from retail customers. The Global Finishes Group net sales were down 11.3% to $444.1 million in the quarter, driven by unfavorable currency translation, which impacted net sales of the segment by 6.4% or $1.7 million.

During the quarter, Sherwin Williams repurchased about 3.88 million shares. At Sept. 30, 2009, the company had authorization remaining to purchase 14.87 million shares.

Sherwin Williams has also released guidance for the fourth quarter and full year 2009. The company expects diluted net income of 35 cents to 55 cents in the next quarter.

In the fourth quarter, the company anticipates consolidated net sales to decrease 8% to 12% from the same period of the previous year. For the full year 2009, the company anticipates net income to be within $3.52 to $3.72 per share compared to $4.00 per share earned in 2008.

Net sales for full year 2009 are expected to be 11.5% to 12.5% lower than 2008. Sherwin Williams expects weak paint demand in the Global Finishes division in the rest of 2009.

We maintain our Neutral recommendation on the stock.

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(SHW) Sherwin Williams Cost Cuts Help Company Exceed Earnings Estimates

Cost cuts have boosted Du Pont’s third-quarter pretax earnings by about $300 million, bringing cost reductions year to date to $900 million. The company’s full-year goal is $1 billion. Raw material, energy and freight costs were 12% lower than the previous year levels, and Du Pont expects these costs for full year 2009 to be about 5 to 6 % lower than 2008.

However, revenue in the quarter slipped 18% to $6.16 billion reflecting a 12% decline in volumes and a 2% fall in prices. Sales in the Coatings & Color Technologies segment decreased 16% to $1.5 billion on continued weakness in motor vehicle markets while sales in the Agriculture & Nutrition segment were down 5% to $1.2 billion, reflecting unfavorable currency impact.

Sales in the Electronic & Communication Technologies declined 13% year over year to $919 million on a 10% fall in volume and 3% lower selling prices driven by weak demand in consumer and general industrial markets.

Sales of $1.3 billion in the Performance Materials division were also down 24%, reflecting weak demand in major markets in all regions, particularly in general industrial and motor vehicle markets. Safety & Protection division sales were down 32% to $1.0 billion on a 22% decline in volumes, driven by lower demand in the industrial and construction markets. Pricing decreases reflected the pass-through of lower chemicals raw material costs.

DuPont has narrowed its full-year 2009 earnings outlook to a range of $1.95 to $2.05 per share. It had previously forecast earnings of $1.70 to $2.10 a share. DuPont expects improving demand in key markets, as well as lower raw material costs.

All major chemical makers, including Dow Chemical Company (DOW), are focusing on cutting expenses. Dow has reined more than $375 million of expenses in the first six months of 2009 and expects synergies of $1.3 billion in the year.

Du Pont is currently the world’s second largest chemical company, in terms of market capitalization, and the fourth in terms of revenues. We maintain our Neutral recommendation on Du Pont.

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(DD) EI DuPont de Nemours & Company Beats Expectations

Air Products’ technology will be vital for Technip’s two liquefaction trains each producing 400,000 tons of LNG per annum for Ningxia Hanas Natural Gas Company, Ltd. Ningxia Hanas, formerly known as Yinchuan Natural Gas Company, is mainly engaged in city gas, gas supply to industrial and commercial users, gas heating, gas-fired power generation, gas-fired cogeneration, and environment protection. The units are targeted to be completed in the second half of 2011.

Other terms of the agreement were not disclosed. Air Products has also signed a turnkey gas supply contract to provide its SunSource Solutions liquid bulk and specialty gases, related gas distribution equipment and engineering services to EI DuPont de Nemours & Company’s (DD) subsidiary, DuPont Apollo (Shenzhen) Ltd. at its new amorphous silicon thin-film photovoltaic (PV) facility in China.

The contract includes long-term supply of nitrogen, hydrogen, argon, oxygen and specialty gases, such as silane, as well as phosphine mixtures. Air Products has installed complete gas distribution systems from its source containers to the point of use within DuPont’s Shenzhen facility. Just a month ago, Air Products had signed two industrial gas projects in China.

One of the company’s joint venture company in Sichuan, China had signed an agreement to build an air separation unit (ASU) for PetroChina Company Limited (PTR), one of the largest oil and gas companies in the world. The ASU, which will go on-stream in 2011, will supply oxygen and nitrogen to PetroChina’s main refinery and ethylene complex in Sichuan.

Air Products also plans to purchase and operate four existing air separation units and build a new ASU, to be on-stream in March 2011, to supply industrial gases to Xingtai Iron and Steel Corporation, Ltd., one of China’s largest specialty steel manufacturers located in Hebei province, China. Air Products is the second largest industrial gas supplier in North America and the fourth largest in the world. The company serves customers in industrial, energy, technology and healthcare markets worldwide.

In the third quarter of fiscal 2009, Air Products reported earnings of $1.05 per share, better than Zacks Consensus estimate of 98 cents. However, we remain concerned about the global weakness in electronic markets, broad-based weakness in Europe and fluctuations in foreign exchange rates & interest rates. We maintain our Neutral recommendation on the stock.

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(APD) Air Products and Chemicals Forays into China

Dow plans to use the remaining proceeds from the Morton Salt sale as well as proceeds from future divestiture agreements to pay down other debt, in line with the company’s broader de-leveraging plan.

Dow’s debt had become a concern to the company. The Rohm and Haas acquisition had increased net debt from $8 billion to $22 billion in the first half of 2009. This resulted in a significant net cash deficit of $19 billion during the period. However, Dow Chemical has become the world’s leading specialty chemicals and advanced materials company after acquiring Rohm and Haas for a total investment of $16.5 billion.

Earlier in August this year, Dow Chemical had made a $2.75 billion public debt offering in an effort to repay a loan used to acquire Rohm & Haas. The proceeds will be used to repay a bridge loan used for the $16.5 billion acquisition by the year-end.

In April, Dow acquired all outstanding shares of Rohm & Haas at $78 each, funding the deal by issuing $7 billion in preferred stock and borrowing $9.23 billion in a short-term loan. To help finance the transaction, Dow has also renegotiated a $12.5 billion bridge loan syndicated by 19 banks led by Citigroup (C), Merrill Lynch and Morgan Stanley (MS). This new loan agreement adds two years to the repayment and has slightly looser debt covenants (the loan’s required leverage ratio has been lifted to 5.75 from 4.25), helping to further protect Dow from default.

Dow aimed to repay the bridge loan through sale of assets, issuance of equity and debt and by slashing dividend by 64% to preserve cash. Asset sales included the company’s thermoplastic polyurethane business, Morton International and the spin-off or sale of the Dow AgroSciences division, as well as some specialty businesses such as powder coatings and synthetic rubber. However, Dow has retained its Agro business, anticipating robust growth in the near term.

We recommend shares of Dow as Neutral.

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(DOW) Dow Chemical Sells Morton Salt and Pays Down Debt

Volatile crude oil prices have significantly affected the basic chemicals market, forcing the second-largest chemical manufacturer in the world to divest its styrene monomer and ethylbenzene production at Freeport, Texas. This sale will reduce Dow’s exposure to a capital-intensive Basic portfolio. About 60 employees will be affected.

Midland, Michigan-based Dow Chemical aims to shift focus to specialty chemicals that are used in cosmetics and food additives, and work with partners to meet basic chemical needs. After the Rohm & Haas acquisition in the second quarter, Dow announced a restructuring plan, including complete integration of ethylene production with internal demand, reducing its ethylene requirement from the US Gulf Coast by about 30%.

Dow expects to improve its cost position by eliminating ethylene purchases from the merchant market. The company purchases about three billion pounds of ethylene from external sources annually.

Separately, Dow partnered with Alstom Power to develop a pilot plant to tap about 1,800 metric tons of carbon dioxide (CO2) annually from flue gas of a coal-fired boiler at its South Charleston, West Virginia facility. Alstom is a global leader in power generation and rail infrastructure. The pilot plant is expected to be operational by the third quarter.

In 2008, Dow and Alstom had agreed to develop an advanced amine technology for CO2 capture. Currently, they are focusing on building an advanced amine-based scrubbing technology for industries that produce exhaust or flue gases containing CO2 and high levels of oxygen.

The new process will significantly reduce the amount of energy required for CO2 separation and capture. The West Virginia pilot plant will validate this new technology. Dow aims to reduce greenhouse gas emissions that are responsible for global warming by exporting the technology to its power plants, where CO2 will be stored.

We maintain our Neutral recommendation on Dow Chemical.

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(DOW) Dow Chemicals Dropping Basic Chemicals

Eastman stands to benefit from its business restructuring and cost-cutting measures, which are expected to result in cost savings of more than $200 million for the full year 2009.

The company’s recent quarterly earnings were ahead of the Zacks Consensus and earlier guidance. For the full-year 2009, the company is now guiding towards earnings to be at the higher end of a $2.00 – $3.00 range.

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(EMN) Eastman Chemical- Bull of the Day

Wilmington, Delaware-based DuPont noted that demand for titanium dioxide usually moves in tandem with the economy. Titanium demand drops when recession intensifies and leads with economic recovery. DuPont added that the titanium dioxide industry operates on small margins, which is a significant entry barrier for new entrants. DuPont being a large-scale producer enjoys cost advantage.

During the first half of 2009, DuPont had reduced its working capital requirement by 28% and trimmed down fixed costs by 15% compared with the same period of 2008. The company was also able to cut its sales, marketing and administrative expenses by 17% year over year.

In addition, product innovation has helped 35% of the company’s revenue in the last five years. DuPont expects emerging markets like China and Russia to fuel 70% to 80% of the industry growth, going forward.

DuPont’s update came soon after the company’s rival Huntsman Corp. (HUN) acquired the titanium dioxide facilities from bankrupt rival Tronox Inc. for $415 million. The buyout makes Huntsman the world’s second-largest producer of titanium dioxide, behind DuPont.

DuPont announced recently that the proposed titanium dioxide facility in China, which was scheduled to open in 2010, has been delayed. The company said that the plant is still awaiting approval of the Chinese government. In 2005, DuPont announced plans to build a new titanium dioxide plant at Dongying in China. Construction of the plant, representing a total investment of about $1 billion, will begin once the Chinese government issues a business license. The plant with an annual capacity of 200,000 tons is expected to begin production three to four years from now.

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(DD) DuPont’s Demand Improves

Air Products agreed to pay approximately $73.1 million for the steam methane reformer (SMR) hydrogen facility currently being constructed at MarkWest’s Javelina processing facility in Corpus Christi, Texas. As per the terms of the deal, Air Products will complete the construction of the SMR, which is expected to start operations in March 2010.

In addition to the purchase and sale agreement, the companies entered into a long-term supply contract whereby Air Products will provide hydrogen and steam to MarkWest. MarkWest will take hydrogen produced by the SMR facility (expected to be over 30 million cubic feet per day), combine it with the partnership’s existing production capabilities at the Javelina plant and then deliver high-purity hydrogen to local refinery customers.

MarkWest intends to use the sale proceeds to repay the amounts outstanding under its revolving credit facility and to support growth capital projects. We believe that the transaction will not only improve the partnership’s financial position but also help it to maintain current distribution levels.

Denver, CO-based MarkWest Energy Partners LP, a master limited partnership (MLP), is engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids (NGLs), and the gathering and transportation of crude oil. The partnership is one of the largest processors of natural gas in the Appalachian region and has a significant presence in the other prolific natural gas producing basins of the U.S. MarkWest’s customers include major oil and gas companies, large and small independent energy companies, and oil refineries.

We currently rate MarkWest units as Neutral.

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(APD) MarkWest Energy Partners Sells Hydrogen Plant

This acquisition further reinforces Air Products’ position as a leading hydrogen provider in the U.S. Gulf Coast. The company said that the new facility, which is expected to be operational in March 2010, will produce over 30 million standard cubic feet per day. It will be owned and operated by Air Products.

The companies also signed a separate long-term supply agreement whereby Air Products will provide hydrogen and steam to MarkWest.

Earlier this year, Air Products strengthened its U.S. Gulf Coast hydrogen pipeline network with the successful completion of a pipeline connection across Lake Pontchartrain. The company said that this enhances the supply reliability and efficiency to its own liquid hydrogen production plant in New Orleans, which is the largest liquid hydrogen facility in the world. In addition, Air Products is in the process of building two new steam methane reformers in the Louisiana portion of its Gulf Coast system.

Air Products has hydrogen pipeline networks operating around the world, including in Southern California, U.S., in Sarnia, Ontario, and Edmonton, Alberta in Canada, and in Rotterdam in The Netherlands.

During the second quarter conference call, the company said that the refinery hydrogen volumes continued to increase. Further, the company expects these volumes to increase modestly from the current levels across most of its pipeline franchises, due to higher demand and fewer customer outages.

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(APD) Air Products Buys New Hydrogen Plant

The Midlands, Michigan-based chemical company stated that the divestiture will increase its financial flexibility, improve cash flow and will help pay down debt. The company plans to use the proceeds from the deal to pay down debt, which was raised for the Rohm and Haas acquisition.

The Rohm and Haas acquisition increased Dow’s net debt from $8 billion to $22 billion in the first half of 2009. This resulted in a significant net cash deficit of $19 billion during the period. However, Dow Chemical has become the world’s leading specialty chemicals and advanced materials company after acquiring Rohm and Haas for a total investment of $16.3 billion.

Dow Chemical also noted that it expects to close its sale of the salt producing company, Morton Salt under Rohm and Haas to the Germany-based K+S AG for $1.68 billion in second half of 2009. K+G AG is an agricultural chemical and salt company and the largest supplier of Potash in Europe. The company is also divesting its stake in Optimal Group of Companies to Malaysia’s state-controlled oil company for $660 million by the end of the year.

This apart, media reported that Dow Chemical and Saudi Aramco are expecting cost synergies of about $4 billion on their joint petrochemical complex as the slowing economy reduces project cost. The estimated cost of the plant was at least $20 billion before reduction. Saudi Aramco is the state-owned national oil company and the biggest oil corporation in the world with the largest proven crude oil reserves and production.

We maintain our Neutral recommendation on the stock.

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(DOW) Dow Chemical Sells Refinery in Netherlands

Investing in options means speculating, right? A hit-and-miss approach to the market?

Sadly, that’s what some options naysayers would like you to believe – and if you do, let me set the record straight…

Investing in anything carries a certain amount of speculation – be it stocks, options, coins, fine art, or any number of other things.

Over the past decade, for example, we’ve seen that even investing in some so-called “safe” blue-chip stocks has proved to be a speculative bet. In fact, it’s carried greater financial risk than investing in LEAP options could ever pose. Over the past year alone, if you had a portfolio of LEAP options in lieu of a stock portfolio, you’d have come out way ahead of the game.

The thing is, though, some “experts” scoff at the fact that owning options can actually mitigate risk. They tend to focus on the speculative aspect, volatility, risk and the perceived complexity.

They’re wrong. Listen up and I’ll show you exactly what the rest of Wall Street fails to understand – and doesn’t want you to know…

Tune Out the Skeptics… The Benefits of LEAP Options

In recent columns, I’ve highlighted the benefits of using LEAP options – long-term options that not only allow you to capture the movement of the underlying stock, but do so within a period of up to three years. Plus, you don’t even have to own or short the shares directly.

At this point, most simpletons point out the speculative aspect. But I’d argue that the only reason why LEAPS fall into this category is because they will expire one day. However, expiration isn’t really an issue if you don’t hold them that long, or actually make money on the investment!

In truth, LEAPS fit well with a conservative investment style because it’s another tool to mitigate risk in a portfolio. Here’s how it works:

• Let’s say you think the stock market will recover in the next 18 months or so.
• To play the recovery, you want to go long on one of the market’s heavyweight blue-chip stocks like Dow Chemical (NYSE: DOW), which tends to move with economic growth.
• Dow’s 52-week trading range swings pretty wildly – from a low of $6 (as investors fled from stocks en masse earlier this year) to a high of $40. The stock is currently sitting around the middle of that range – $22.
• That means if you were to buy 1,000 shares, you’d fork over $22,000.
• Let’s say your target price is $35 by January 2011. On the downside, if you used a 25% stop-loss, you’d exit the stock at $16.50 or lower. In dollar terms, that’s a $5,500 loss.

Bottom Line: You’re willing to risk losing $5,500 in hopes of making $13,000 ($35 target minus the $22 current price = $13), or 60%.

LEAPS: Lower Cost… Lower Risk

Now let’s see how the above compares to using a LEAP option strategy…

Remember, our target time period is January 2011. Pull up the options chain for that expiration month and you’ll see that the DOW $22.50 LEAP call option (VDO-AX) is currently trading for $3.60. This is known as the strike price – the price at which you have the right to buy the shares at options expiration (of course, you could sell the option before that date).

To control the same number of shares as our stock position (1,000), you’d therefore have to buy 10 option contracts (since one contract is comprised of 100 shares). So your outlay would be $3,600 ($3.60 multiplied by 100 = $3,600).

That means you’ve got a pretty compelling twin benefit…

• Right off the bat, you can see that your total risk in this trade is $3,600, versus the $5,500 you’d be willing to lose with a 25% stop-loss on the regular stock position.
• By only risking $3,600, that’s $18,400 less than you’d have spent buying the shares outright – money you could use for other things. For example, if you put it in an account that earned 3% interest, you’d offset your LEAP option cost by $1,000 over the course of the trade.

Now for the profit potential…

Stocks vs. LEAPS: 60% Profits vs. 190% Profits

By using LEAPS, your cost to control the DOW shares is $26.10.

We arrive at that number by simply adding the option premium ($3.60) to the strike price ($22.50).

Using the $35 target price, you can see that the potential profit is $8.20 per contract ($35 strike price minus the $26.10 cost). So for the 10 contracts (1,000 shares), that works out to $8,200 – a 190% return on your money ($8.20 divided by $4.30).

So let’s recap…

• The Stock Investment: Buying DOW shares outright means you’re looking to make $13,000 (60%)… but you have to invest $22,000 to do it, and you’re risking a $5,500 loss if the position goes against you.
• The LEAP Investment: By executing a LEAP option play, you stand to make $8,200 (190%)… but you only invest $3,600.

That’s not only mitigating your risk, but also boosting your profit potential. Perfect for any market – but particularly the current one.

Karim Rahemtulla

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(DOW) How to Supersize Your Profit Potential From 60% to 190%

The Vancouver-based company had $278 million of cash in hand at the end of the second quarter. With the new credit agreement and no near-term refinancing requirements, Methanex has positioned itself well to meet its financial commitments and continue investing in projects that stimulate growth.

Methanex is the world’s largest supplier of methanol to major international markets in North America, Asia-Pacific, Europe and Latin America, with about a 15% market share.

The chemical Methanol is a blend of 68% natural gas and 32% coal. Natural gas costs have been rising resulting in higher cost of producing methanol. In 2008, the company’s cash costs of producing methanol increased by $73 million due to higher natural gas costs.

Approximately 80% of all methanol output is used for production of formaldehyde, acetic acid and a variety of other chemicals, demand for which is influenced by the levels of global economic activity. These chemical derivatives are used in the manufacture of a wide range of products including plywood, particleboard, foams, resins and plastics.

The remainder of methanol demand largely stems from the energy sector for the production of methyl tertiary-butyl ether (MTBE) – a gasoline component – and as a direct fuel for motor vehicles. Use of methanol in manufacturing bio-diesel and dimethyl ether (DME) in power generation and other applications is also on the rise.

Methanex has embarked on a number of growth projects including the one on alternative natural gas sources in Chile. However, lower demand and pricing, as well as an increase in worldwide inventories of methanol due to the global economic crisis are negatively affecting the company. We maintain our neutral recommendation on the stock.

Zacks Investment Research
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(MEOH) Methanex Secures $200 Million Revolving Credit Facility

The second quarter report suggested that DuPont spent more than $1.2 million to lobby on biotechnology, trade, taxes and more. During April-June, the company also lobbied Congress, the White House and a number of federal agencies including the departments of Agriculture, Commerce, Defense and Treasury on chemical plant security, patent reform, energy efficiency and climate change.

On the other hand, Eastman, the Tennessee-based manufacturer of coatings and specialty plastics spent $270,000 lobbying the federal government on clean energy, antitrust and other issues. During April-June, the company also lobbied Congress and the Energy Department on legislation dealing with industrial gasification incentives, shareholder rights as well as antitrust and labor issues.

The chemical industry is susceptible to environment-based litigation. This has prompted many chemical companies to seek safe haven through lobbying. Further, the global economic recession has generated weak demand across most of the U.S. markets. This has led the chemical companies to engage in lobbying to maintain their market share.

Zacks Investment Research
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(DD) Chemical Giants Utilize Lobbying

This is very good news. The only real weak spots I saw in the report were that inventories rose by 7.3%, so despite the increased sales rate, the months of supply remained at a very high (but off peak-level) of 9.4 months.

Median prices fell 15.1% from a year ago to $178,400. While median price is not the best metric for judging home prices (it can be easily influenced by the mix of houses), this rate of decline is roughly consistent with the Case-Schiller numbers and is not a surprise.

While some uptick in inventories is normal, this month was much more than normal. The overhang of inventories means that prices will still be under pressure for awhile. Still, this was the biggest monthly gain in new home sales since 1999.

As can be seen in the graph below (from http://www.calculatedriskblog.com/) it now appears that existing home sales are in a sustained uptrend. While existing home sales do not have that much direct influence on the economy, it is a good sign.

It is certainly welcome news for firms like Sherwin Williams (SHW) since when people move into a new (for them) house, they tend to do things like paint and redecorate. Furniture companies like La-Z-Boy (LZB) and carpet companies like Mohawk (MHK) should also benefit.

Three of the four regions saw increases on a monthly basis, and all four regions saw year-over-year gains. The West was the weakest, with sales dropping 1.7% on the month to a seasonally adjusted rate of 1.13 million. However, sales were 1.8% higher than a year ago.

The West was also the weakest on a pricing front, with the median price plunging 28.0% from a year ago to $202,300. This is not a huge surprise, since three of the four poster children for the housing problems — California, Nevada and Arizona — are located there.

The best monthly performance was in the Northeast, where sales were up 13.4% to an annualized rate of 930,000. That was 3.3% higher than a year ago, but the median price fell 15.0% over the last year.

The Midwest had the best year-over-year performance with a increase of 8.0% to a rate of 1.22 million. It was up a strong 10.9% on the month. The region also had the smallest decline in median prices, off just 5.9% from a year ago.

The South saw a monthly increase of 7.1% and was up 5.4% year over year as the median price fell 7.1% to $164,500. At an annual rate of 1.95 million, it remains by far the most important region for housing.

All in all, this is a very encouraging report. In existing home sales, we have gone beyond stabilization to an actual rebound. Granted much of the activity is still being driven by distressed sales of foreclosures and short sales, and by the first time buyer tax credit (which expires 11/30), but still I find this report very encouraging.

Next Tuesday we will get the new home sales data. If it looks anything like the used home data, people will have to revise upwards their near-term expectations for the economy. Housing, most importantly new housing, is historically the engine that pulls the economy out of a recession, and if it is picking up, the economy will be on a much sounder footing.

Zacks Investment Research
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(SHW) Used Home Sales Jump

DuPont also redefined its reporting segments to provide greater transparency. The new segments would be Agriculture & Nutrition (Pioneer Hi-Bred, Crop Protection, Nutrition & Health), Electronics & Communications, Performance Coatings, Performance Materials (Performance Polymers and Packaging & Industrial Polymers), Safety & Protection (Protection Technologies, Building Innovations, Safety Resources), Performance Chemicals (Chemical Solutions, Fluoroproducts, Titanium Technologies) and Pharmaceuticals (Applied BioSciences).

As part of the consolidation, the chemical maker commented that it eliminated the five group vice president positions and their supporting business structures associated with the platforms that house its businesses. The group vice presidents have currently been reabsorbed in new roles within the 14 businesses.

Among the various role changes, the most significant was the transfer of Executive Vice President and Chief Financial Officer Jeffrey Keefer to lead the Performance Coatings business, corporate strategy development process and overall cost and working capital productivity efforts, effective Nov 1.

DuPont claims the streamlined organization will bring business decisions closer to customers and increase transparency and accountability. We continue to maintain our Neutral recommendation on the shares of DuPont with a target price of $33.00.

Zacks Investment Research
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(DD) DuPont Reorganizes 23 businesses into 14 to streamline operations

However, it appears that the worst is over as demand for computers and Flat Panel Display TVs is showing more strength than would be expected on a seasonal basis. But the problems of the worldwide recession had caused some companies to reduce production and some shortages will occur over the next few months. These include DVD and CD drives (since optical pick-up heads are in short supply); HDD drives for notebooks and LCD glass panels.

PC demand is picking up in the consumer notebook area, which includes the new netbook category. The Macbook is particularly strong. Business demand for PC remains weak as business customer are waiting for the release of OS7 from microsoft.FPD for notebook PCs was up 35% Q/Q and netbook displays increased 85%. We expect PC sales to show positive Y/Y gains in the second half of 2009. Even the DRAM market is picking up, probably as a result of improving notebook sales.

The cell phone market is still in a state of technology transfer from traditional to smart phones. Apple (AAPL) sold a million new iPhones in the first weekend, dwarfing Palm’s (PALM) Pre sales. For the first three months the estimates of Pre sales vary over a wide range, from 150,000 to 300,000, with most recent reports estimating a balance between supply and demand for the Pre of about 40,000 a week.

Supply has been constrained due to supplier problems and Palm may introduce an updated Pre handset before year end. More phone manufacturers are announcing new smart phones, such as Nokia (NOK) for Sprint (S), and it is possible that the netbooks that the phone companies will be selling may take some market share from smartphones.

Prepaid phone rates are dropping as secondary cellular providers offer deals on networks rented from the major providers. Prepaid is one of the faster growing sectors in the cellular business.

The TV market is picking up. Volume has grown significantly and unit sales at retail look good. However, much of the retail demand is driven by deep discounted sales of smaller screen sizes, with 32″ being pushed. Best Buy (BBY) had good results in TV, notebook PCs and cell phones in the first quarter and we believe this has continued in the second quarter.

LG (LPL), the second largest FPD maker after Samsung, has announced a capacity increase of an 8G plant (the latest technology plant is 11Generation) that will supply the smaller size panels. Corning Glass (GLW) has restarted a FPD glass line and the company continues to announce better than expected demand and increased growth forecasts.

Digital camera demand remains stagnant as higher priced SLR camera demand, which had been growing, seems to have flattened out and there are some good sales for those looking for something better than a pocket camera.

Overall we expect a reasonable Xmas season. Inventories are at a low level and there may be a few shortages. The pessimism of the beginning of the year is not as prevalent and CE consumer confidence looks to be improving.

Zacks Investment Research
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(CE) Consumer Electronics – Industry Outlook

OPPORTUNITIES

The industry is divided into commodity chemicals (45%) and specialty chemicals (55%). The commodity segment tends to be more concentrated, and cost reductions, improving yield from better technology and economies of scale are important. In the specialty segment, margins are higher due to better pricing and more efficient operations.

Demand for fertilizers is driven by crop prices. Since crop prices have fallen, so has fertilizer demand, but with reduced capacity, prices should stay firm.

The chemical industry is a large consumer of oil, natural gas and energy. However, oil and gas prices are weak. Many chemical and fertilizer companies have excellent balance sheets and cash flows. This bodes well for the industry in this time of tightened credit and financial instability.

WEAKNESSES

Demand growth is near 0% currently. Demand for chemicals tracks global industrial production and global GDP very closely. Housing and auto markets could continue to weaken. Nearly 10% of chemical demand is directly tied to the housing sector, and an additional 10% is tied to the auto sector.

The global slowdown in economic growth will directly affect the chemical industry. Prices may fall. Pricing power is a function of three variables: inflation, capacity utilization and raw material price changes. Inflation is low (but could increase with aggressive monetary policy), capacity utilization levels are weakening, and oil prices are weak. This suggests a high probability of falling prices.

There is the chance of accelerating capacity growth in 2009-2011, assuming that projects do not get cancelled. This is at a time when demand is slowing and operating rates are falling.

BUY/SELL RATINGS

Celanese (CE) is rated a Sell due to weak demand growth.

Zacks Investment Research
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(CE) Chemicals & Fertilizers – global slowdown in economic growth will directly affect the chemical industry

Company Description

Ashland manufactures specialty chemical products for customers in 100 countries. The company has 5 segments: Ashland Aqualon Functional Ingredients, Ashland Hercules Water Technologies, Ashland Performance Materials, Ashland Consumer Markets (Valvoline) and Ashland Distribution.

On June 22, the company announced it would sell its global marine services business, known as Drew Marine, to J.F. Lehman & Company, a private equity firm, for $120 million before tax. The after-tax proceeds will be used to pay down debt.

Drew Marine had revenue of approximately $140 million a year with employees in 47 countries. The transaction is expected to close in the next 2 months.

Ashland Surprised by 109.68% in the Fiscal Second Quarter

On Apr 30, Ashland reported its preliminary fiscal 2009 second quarter results which surprised on analysts’ estimates by 34 cents. Adjusted earnings per share were 65 cents compared to Wall Street estimates of just 31 cents.

Revenue, however, declined 3.4% to $1.99 billion from $2.059 billion in the year ago period.

Sales volume fell anywhere from 10% to 40% across all business segments. The quarter was aided by declining raw material costs and the idling of capacity. Cost-cutting and integration of the Hercules business acquired in 2008 led to $60 million in realized savings.

2009 Outlook

The company expects demand to remain flat for the rest of 2009 due to the global recession. Ashland intends to use cash to reduce debt and will continue to resize its businesses to meet current demand and economic conditions.

Consensus Estimates Rise Sharply

Despite the decline in sales from the year ago period, covering analysts expected the fiscal second quarter to be much worse. Therefore, with the big surprise on EPS, analysts have scrambled to adjust earnings estimates for both the third quarter and the full year.

Third-quarter consensus estimates rose 32 cents to 82 cents in the last 2 months.

Fiscal 2009 consensus estimates jumped 60.13% to $2.53 from $1.58 in the prior 60 days.

Value Fundamentals

Ashland is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 9.6 and a price-to-book ratio of 0.50. The company pays a dividend with a current yield of 1.20%.

Zacks Investment Research
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(ASH) Ashland Inc. – Value – Zacks Rank Buy

OPPORTUNITIES

The industry is divided into commodity chemicals (45%) and specialty chemicals (55%). The commodity segment tends to be more concentrated. In the commodity segment, cost reductions, improving yield from better technology and economies of scale are important. In the specialty segment, margins are higher due to better pricing and more efficient operations.

Demand for fertilizers is driven by crop prices that are high levels. At these levels, fertilizer demand should be steady at worst, and with reduced capacity prices should stay firm. The chemical industry is a large consumer of oil, natural gas and energy. However, oil and gas prices are falling, and this is providing a windfall.

Many chemical and fertilizer companies have excellent balance sheets. This bodes well for the industry in these times of tightened credit and financial instability.

WEAKNESSES

Demand growth is slightly negative currently. Demand for chemicals tracks global industrial production and global GDP very closely. Housing and auto markets could continue to weaken. Nearly 10% of chemical demand is directly tied to the housing sector, and an additional 10% is tied to the auto sector.

The global slowdown in economic growth will directly affect the chemical industry. Prices may fall in this industry. Pricing power is a function of three variables: inflation, capacity utilization and raw material price changes. Inflation is low (but could increase with aggressive monetary policy), capacity utilization levels are weakening, and oil prices are falling. This suggests a high probability of falling prices.

There is the chance of accelerating capacity growth in 2009-2011, assuming that projects do not get cancelled. This is at a time when demand is slowing and operating rates are falling.

BUY/SELL RATINGS

Celanese (CE) is rated a Sell due to weak demand growth. Eastman (EMN) is rated a Sell due to weak demand, overcapacity in the PET market and a decline in free cash flow.

Zacks Investment Research
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(CE) Chemicals & Fertilizers – Industry Outlook

Company Description

Sherwin-Williams Co. manufactures, develops, distributes and sells coatings and related products to professional, industrial, commercial, and retail customers. The company manufactures products under well-known brands such as Sherwin-Williams®, Dutch Boy®, Krylon®, Minwax®, Thompson’s® Water Seal®, and many more. With global headquarters in Cleveland, Ohio, Sherwin-Williams® branded products are sold exclusively through a chain of more than 3,000 company-operated stores and facilities, while the company’s other brands are sold through leading mass merchandisers, home centers, independent paint dealers, hardware stores, automotive retailers, and industrial distributors. The Sherwin-Williams Global Finishes Group distributes a wide range of products in more than 30 countries around the world.

Solid Income

The company recently declared a regular quarterly dividend of 35 cents per share. SHW noted that the dividend is payable on December 5 to shareholders of record on November 14. The company is yielding 2.5%, which is in line with the industry.

Growth Reflected in Third-quarter Results

The company also posted third-quarter earnings of $1.50 per share, exceeding the consensus estimate by 18%. Sales climbed 3.3% to a record $2.269 billion.

Commenting on the third quarter and first nine months results, Christopher M. Connor, Chairman and Chief Executive Officer, said, “We continue to manage our business through the challenging environment of the U.S. and global economies. We are experiencing an unprecedented downturn in the U.S. housing market that has severely depressed paint demand in the domestic new residential, residential repaint, DIY and commercial markets. During the third quarter, the strong paint demand we had enjoyed in many foreign markets began to subside and we anticipate increasing softness in the months ahead. Despite these conditions, we are pleased with the progress of our operating segments in producing record sales performance and strong cash generation.”

More Signs of Growth

SHW’s earnings per share are expected to grow by 12% over the next 3 – 5 years, which is above the industry average of 9%. The company’s return on equity (ROE) of 37% also tops the industry average of 20%.

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(SHW) Sherwin-Williams Co – company’s return on equity (ROE) of 37% also tops the industry average of 20%