Bloomberg News

Dow Chemical Posts Unexpected Loss After Plastics Sales Drop

February 03, 2012

(Updates with comment from CEO in seventh paragraph.)

Feb. 2 (Bloomberg) -- Dow Chemical Co., the largest U.S. chemical maker, posted an unexpected fourth-quarter loss after demand fell in Europe and North America, reducing sales of plastics and other materials.

The net loss of $20 million, or 2 cents a share, compared with net income of $426 million, or 37 cents, a year earlier, Midland, Michigan-based Dow said today in a statement. The average of five analysts’ estimates compiled by Bloomberg was for net income of 32 cents a share. Revenue rose 2.4 percent to $14.1 billion from $13.8 billion.

Chief Executive Officer Andrew Liveris is struggling with higher costs for raw materials including ethane and lower orders from Europe amid the continent’s sovereign debt crisis. Profit from plastics, Dow’s biggest unit, tumbled 29 percent as costs rose for ethane and other raws materials and demand for resins such as polyethylene fell.

“There is nothing good happening in the polyethylene market,” Mark Connelly, a New York-based analyst at Credit Agricole Securities USA Inc. who rates the shares “underperform,” said yesterday in a phone interview. “The China business slowed down dramatically.”

Dow fell 3.4 percent to $32.80 at 8:11 a.m. before the start of regular trading in New York. The shares dropped 6.7 percent in the 12 months through yesterday.

Adjusted Profit

Profit was 25 cents a share excluding an allowance for deferred taxes in Brazil, asset-impairment costs and other one- time items, Dow said. That trailed the 31-cent average of 17 analysts’ estimates compiled by Bloomberg.

Costs for ethane are dropping in the current quarter, and customers are rebuilding inventories from an “all-time low,” Liveris said today in an interview on CNBC. Low U.S. costs for natural gas will boost profit margin through 2012, he said.

Sales volumes fell 4 percent in North America and 5 percent in the region that includes Europe, the Middle East and Africa, Dow said. Gains of 3 percent were posted in Asia Pacific and Latin America. Plant operating rates dropped on average 9 percentage points to 72 percent in the quarter from a year earlier, Dow said.

“The shortfall was due to macro-environment deterioration starting mid-quarter as customers looked to de-stock inventory heading into year-end,” Charles Neivert, a New York-based analyst at Dahlman Rose & Co. who rates the shares “hold,” said today in a note.

‘Challenges’ in Europe

Dow expects “challenges in Western Europe to persist in the near term,” Liveris said in the statement. “We do not anticipate material improvements in market conditions for the first quarter of the year, but do project economic recovery will gain momentum as we move through the second quarter and the remainder of the year.”

Price increases fully recouped higher costs for raw materials and energy, Dow said.

Dow and Saudi Arabian Oil Co. said in July they will proceed with a $20 billion plan to build factories that make petrochemicals from low-cost oil and gas derivatives at the Saudi port of Jubail. Dow plans to expand production of plastics ingredients ethylene and propylene in Texas and Louisiana, including construction of an ethane cracker, its first U.S. ethylene plant since 1995.

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

(Dow scheduled a conference call to discuss results at 9 a.m. New York time, which can be accessed at LIVE <GO> or on the company’s website at www.dow.com.)

--Editors: Steven Frank, Tina Davis

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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