Bloomberg News

Dow Earnings Exceed Estimates as Plastics, Chemicals Gain

July 27, 2011

(Updates with closing share price in fifth paragraph.)

July 27 (Bloomberg) -- Dow Chemical Co., the largest U.S. chemical maker, reported second-quarter profit that exceeded analysts’ estimates, led by sales of plastics, caustic soda and genetically modified seeds.

Net income rose to $1.07 billion, or 84 cents a share, from $651 million, or 50 cents, a year earlier, Midland, Michigan- based Dow said today in a statement. Earnings excluding costs for early debt repayment were 85 cents a share, topping the 79- cent average estimate of 12 analysts in a Bloomberg survey. Revenue climbed 18 percent to $16 billion from $13.6 billion.

Chief Executive Officer Andrew Liveris is expanding in Saudi Arabia and on the U.S. Gulf Coast to turn low-cost natural gas into chemicals used in food packaging and auto parts. Basic plastics was the most profitable unit as sales volumes grew by a record in the Asia-Pacific region. Earnings from commodity chemicals more than doubled on sales to paper and alumina makers.

“The strength continued on the basics side in chemicals and plastics,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said in a telephone interview. “Volumes were strong across the board in every segment.”

Dow fell 86 cents, or 2.4 percent, to $34.99 at 4:15 p.m. in New York Stock Exchange composite trading, as the Standard & Poor’s 500 Index dropped the most in almost two months. The shares have gained 2.5 percent this year.

Prices Raised

Excluding divestitures, Dow increased product prices 19 percent from the year-earlier quarter and sales volumes gained 9 percent. Volumes climbed 14 percent in emerging markets and 11 percent the Asia-Pacific region, Dow said.

Price gains outpaced $1.5 billion of higher costs for raw materials and energy, leading to the ninth consecutive quarter of margin expansion, Dow said.

“In fast-growing emerging geographies, despite some inflationary pressures, the rapid expansion of the middle class continues to drive robust underlying fundamentals,” Liveris said in the statement.

“On the whole we see growth continuing to gain traction in developed markets, albeit at a somewhat uneven and jagged pace given persistently high unemployment in the United States and sovereign debt concerns in Europe,” he said.

Profit in the health and agriculture unit climbed 46 percent as demand for seeds and genetic licenses rose 35 percent, Dow said. Profit increased 16 percent in the performance-systems unit on sales of synthetic rubber and automotive materials, and performance products advanced 17 percent amid gains in epoxies and polyurethanes. Earnings in units that supply makers of electronics and paints each increased less than 1 percent.

Debt Repaid

Dow repaid $1.5 billion of debt in the quarter, bringing total repayments for the year to $4 billion. Cash and cash equivalents fell to $2.22 billion on June 30 from $7.04 billion at year end, meeting Liveris’s February target of using cash to repay debt, increase shareholder payouts and fund expansion projects.

“The combination of their strong commodity business, the success of their specialty businesses, robust cash flows that are going toward debt reduction, and a modest multiple keep Dow as our top large cap pick in the space,” John P. McNulty, a New York-based analyst at Credit Suisse Group AG, said today in a report.

Dow and Saudi Arabian Oil Co. said this week they will spend $20 billion to build factories for making petrochemicals from low-cost oil and gas derivatives at the Saudi port of Jubail starting in 2015. Dow plans to expand production of ethylene and propylene in Texas and Louisiana, including construction of its first U.S. cracker since 1995.

Dow, founded in 1897 as a bleach maker, is the world’s biggest producer of chlorine, epoxy resins and polyethylene plastic. It’s the world’s second-biggest chemical maker behind Germany’s BASF SE.

--Editors: Steven Frank, Simon Casey.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.


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