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Rohm and Haas (ROH) supplies chemicals necessary to manufacture electronics, paint, and packaging materials. The company's 2007 sales were $8.9 billion, reflecting the prevalence of Rohm and Haas materials in end products such as LCD displays, cars, cell phones, furniture, paints and other household items. Rohm and Haas also produce a few of its own consumer goods, such as de-icing salt and table salt. Morton Salt, one of the company's divisions, accounts for roughly half of the table salt purchased in the U.S.
Rohm and Haas is being tugged in multiple directions. Sales have increased 12.8% in the past two years because of the explosive growth of the electronics sector. [1] [2] On the other hand, since roughly half of Rohm and Haas's business is related to the housing and automotive industry, the weak US market in 2007 has slowed growth. Furthermore, many Rohm and Haas products require oil and natural gas in production, which exposes the firm to volatile oil prices and the energy market. Although the chemical industry can be cyclical and face prolonged downturns, Rohm and Haas's diversity in products and regions shields the company from any single adverse exposure. The company sells its products internationally, with North America accounting for 49% of sales, Europe 25%, Asia 22% and rest of the world at 4%. [3]
[edit] Business Financials
As shown by the charts below, Rohm and Haas is truly a diversified materials manufacturer with no more than a quarter of its sales coming from any single segment of the company. In addition, sales for each segment have been on the rise in the past two years, as the firm actively seeks to acquire new technologies and companies.
While other business segments have grown on par with company growth, electronic technologies sales have grown from 17% of overall sales to 19%. [4] The reason is largely because 62% of electronic sales are in the Asia-Pacific region, where demand for electronics has exploded. Paint and packaging materials remain the two largest segments of Rohm and Haas and have had steady growth.
Sales for Rohm and Haas was up 4.4% in 2006 and 8.1% in 2007.
Rohm and Haas has been paying increasing dividends for the past 30 years, with a doubling of annual dividends in the past 10 years. Dividend for 2007 was $1.44 per share, an increase of 12.5% from 2006. [5]
[edit] Key Trends and Forces
[edit] Semiconductor and Electronics Industry Growth is Boosting Rohm and Haas Revenues
Rohm and Haas makes chemicals used in the production of LCD TVs, and a global increase in demand for these products has led to explosive growth. Electronics sales have grown 26.3% over the past two years, outpacing overall sales growth of 12.8%. The company devotes 40% of its research and development funding into the electronics segment, and the electronics sector currently accounts for 19% of company sales.[6] With cable companies like Comcast and Time Warner continuing to expand their HD TV offerings to compete with satellite providers, the company benefits as retailers like Best Buy and Circuit City heavily promoting their LCD products.
[edit] Growth in the Asia-Pacific Region is Crucial to Future Growth
In the past three years, Rohm and Haas has increased sales in the Asia-Pacific region, mainly in the electronic and performance materials sector. 62% of the company's 2007 electronics sales were in this region. The company views this region as a "rapidly developing economy", and that consumers in these regions continue to buy manufactured goods that are made with Rohm and Haas chemicals. In the past year, the growth in sales in the Asia-Pacific region offset decreased overall sales in the U.S.
[edit] The Housing and Automotive Industry Slumps Have Hurt Sales
Within the past year, the housing and automotive sectors have been in a clear slump. This has adversely affected the sales of several Rohm and Haas business segments, including packaging and building materials. A prolonged slump in these two key industries will weigh down the company's overall growth and sales - sales in North America already declined 1% in 2007.
[edit] Rohm and Haas’s input costs are dependent on raw material costs
Rohm and Haas purchases 3.7 billion pounds of petrochemicals annually. This large dependence on oil products can hurt the company if oil prices continue their record rises in 2008. Since the oil market is so volatile, contracts for supplies are usually short term, making long term planning difficult. Additionally, since the supply of oil products is tight across the globe, in any emergency situation obtaining additional supplies will be extremely difficult. [7] Additionally, a spike in oil prices will drastically hurt Rohm and Haas’s profit margin as input costs will rise.
[edit] Strong Foreign Currencies is Boosting Rohm and Haas Sales
Because Rohm and Haas relies on markets outside the US for generating over half of its sales, it is subject to foreign exchange rate fluctuations. This means that when international sales are converted, the stronger international currency translates into more U.S. dollars. In 2007, the weak dollar boosted earnings by $41 million. [8]Furthermore, the weak U.S. currency brings prices of American goods down, making them more attractive to international buyers.
[edit] Competitors
With the global chemical industry being a $2 trillion enterprise, Rohm and Haas do not even rank in the top 25 chemical producers in the world. Within the US, however, Rohm and Haas is an important player, but there are several competitors to its market share:
- Dow Chemical Company (DOW) : Although Dow Chemicals focuses on plastics manufacturing, they compete directly with Rohm and Haas on performance chemicals. Dow Chemicals is the largest US chemical manufacturer.
- Exxon Mobil (XOM) : Exxon Mobil has a stronghold in automotive chemicals derived from oil. Although chemical production is not the main business of Exxon Mobil, its chemical company still has annual sales of over US $30 billion.
- DuPont (DD) : DuPont is a pioneer in polymer manufacturing. DuPont and Rohm and Haas compete directly over many products because of the wide spread use of polymers in the 21st century. DuPont has annual revenues of over US $28 billion. [9]
[edit] References
- ↑ ROH 2007 10K, Item 1, page 8
- ↑ "Rohm and Haas 4Q Profit Rises 8%", Reuters, January 28, 2008
- ↑ ROH 2007 10K, Item 1, page 8
- ↑ ROH 2007 10K, Item 1, page 10
- ↑ ROH 2007 10K, Item 6, page 34
- ↑ ROH 2007 10K, Item 1, page 22
- ↑ ROH 2007 10K, Item 1, page 21
- ↑ ROH 2007 10K, Note 5, page 85
- ↑ http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/1147.html
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