Dow Chemical Co. (DOW:US), the chemical producer eliminating 2,400 jobs to cope with a slowing economy, reported better-than-expected third-quarter earnings as volumes rose and plastics output benefited from low-cost natural gas.
Net income (DOW:US) fell 35 percent to $582 million, or 42 cents a share, from $900 million, or 69 cents, a year earlier, Midland, Michigan-based Dow said in a statement dated today. That exceeds the 37-cent average of 16 analysts’ estimates compiled by Bloomberg (DOW:US). Revenue dropped 9.7 percent to $13.6 billion.
Chairman and Chief Executive Officer Andrew Liveris said yesterday he’s cutting jobs and closing plants at the biggest U.S. chemical maker because global economic growth is slowing. The belt-tightening won’t affect planned expansion on the U.S. Gulf Coast, where low-cost natural gas from shale helped boost third-quarter demand for ethylene-derived plastics by 5 percent, Dow said.
“Dow had very strong volumes in an uncertain macroeconomic environment,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors who recommends buying the shares, said today by phone. “When I heard the announcement they were cutting jobs, I thought they had a really bad quarter, but it seems that business is A-OK.”
Liveris is eliminating 2,400 jobs and closing 20 plants to cope with slow global economic growth. About 3,000 employees will receive severance notices, with the difference due to growth in other strategic programs, Rebecca Bentley, a Dow spokeswoman, said today.
The moves will save about $500 million over two years and another $500 million will be saved by curtailing capital spending and other plans, Dow said.
“Liveris is putting his money where his mouth is,” Ahmed said. “Clearly we are living through uncertain times, so cutting 5 percent of workforce is quite proactive.”
Dow rose 4.7 percent to $29.88 at the close in New York. The shares (DOW:US) have increased 3.9 percent this year.
The company’s cost-savings plans, which now total $2.5 billion, won’t affect investments in Saudi Arabia or on the U.S. Gulf Coast to turn oil and low-cost natural gas into plastics and other chemicals, Liveris said yesterday.
“Our low-cost feedstock advantage enabled us to deliver volume growth -– despite weakening demand,” Liveris today said in the earnings statement. “These difficult conditions may have extended staying power, as the new reality is that we are operating in a slow-growth and volatile world.”
Sales excluding divested units fell in every region as prices declined an average of 9 percent, outweighing a 2 percent gain in sales volumes, Dow said.
Dow’s basics businesses, including performance plastics and performance materials, accounted for the majority of the earnings beat, boosting profit 17 cents more than estimated, Don Carson, a New York-based analyst at Susquehanna Financial Group who rates the share neutral, said in a note today.
The average operating rate at Dow’s factories was 83 percent, unchanged from a year earlier and 5 percentage points more than the second quarter, the company said. The sequential improvement shows the prior quarter was hurt by plant maintenance, as Dow said at the time, rather than poor operations, Ahmed said.
“The biggest question they faced last quarter was, ‘Are these guys bad operators?’” Ahmed said. “They have allayed those fears this quarter.”
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