Although consumers are not necessarily feeling much better yet, the recovery in the industrial side of the economy seems to be real. Over the last week or so, we have seen several large industrial concerns report strong earnings and cautiously optimistic guidance. Turning to one of the basic feed stocks of industry, specialty chemicals, we see a similar trend at work. Let's take a look at some of the top-performing companies in this sector.
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Albemarle
Albemarle (NYSE:ALB) is mostly a niche producer of specialty chemicals, but do not be fooled into thinking that "niche" is somehow a bad word. Albemarle is a leading producer of refinery catalysts, fire retardants and pharmaceutical inputs and those can be lucrative segments.
In the second quarter, Albemarle saw revenue jump 33% from last year's level (up about 2% sequentially), as the company delivered record earnings in catalysts and polymer solutions (which includes those fire retardants). Operating profit more than doubled, and the company is seeing ongoing strength in its ability to push on prices.
Considering that this company's growth is coming from the refinery sector and the electronics market, this should be positive for overall economic performance, as gas and diesel are needed to move goods and people around, while electronics are ever-present components in finished goods.
RPM
RPM (NYSE:RPM) is a bit of a different story, as this company has numerous customer-facing brands like DAP and Zinsser. With a sizable business in coatings and sealants, RPM is also much more sensitive to the overall tenor in the construction markets.
Here, then, the news is positive, but not quite as dramatically so as for the other companies. Sales were up 13% this quarter, with over 11% organic growth and 9% volume gains. Growth was pretty similar across the industrial and consumer business, although the latter did see incrementally higher volume growth. Whereas Albemarle management was quite confident about business going into the second half, RPM management was a bit more cautious, suggesting that the U.S. housing market may be bottoming, but that there were still risks in the persistently high unemployment and sluggish commercial construction market.
Fiber Is Good For You - Hexcel And Cytec
While Cytec (NYSE:CYT) is more than just a play on carbon fiber, it seems that enthusiasm about this market is building for both Cytec and Hexcel (NYSE:HXL). Build rates for Boeing (NYSE:BA) and Airbus (OTC:EADSY) are shaping up and carbon fiber continues to replace metals in the make-up of commercial and military aircraft.
Hexcel produced 10% revenue growth for its June quarter, with double-digit growth in commercial aerospace offsetting softer performance in defense and industrial (largely wind turbines) markets. Gross margins improved, though, by almost 300 basis points and Hexcel delivered 36% growth in operating income, along with a relatively optimistic outlook on the second half of the year. (For more, see Zooming In On Operating Income.)
By comparison, Cytec is a much more diversified business than Hexcel - carbon fibers are just part of the company's multibillion dollar sales base. Overall sales rose 28%, fueled in part by 89% growth in the company's "building block chemicals" business and 25% growth in coating resins.
On the whole, Cytec saw 19% growth from volume and 11% growth from pricing. That volume growth is perhaps the detail I will most remember - that strikes me as more than just inventory restocking, so it seems that the industrial economy really is recovering.
The Bottom Line
I think it is a good sign for an industry when the weakest member (arguably RPM in this foursome) still managed double-digit top-line growth. Moreover, the read-throughs seem to be positive - you would think from this performance that DuPont (NYSE:DD) would have had a solid quarter, and they did. Likewise, this should be positive for a host of companies including Dow (NYSE:DOW), BASF (OTC:BASFY), and Akzo Nobel (OTC:AKZOY).
