Jan. 29 (Bloomberg) -- Dow Chemical Co., the largest U.S. chemical maker, posted fourth-quarter earnings that exceeded analysts' estimates, buoyed by price increases for plastics and rising demand in Europe.

Net income dropped to $472 million, or 49 cents a share, from $975 million, or $1, a year earlier, Midland, Michigan-based Dow said today in a statement. Profit excluding some restructuring costs and other items was 84 cents, topping the 80- cent average estimate of 14 analysts surveyed by Bloomberg.

Chief Executive Officer Andrew Liveris said in an interview that price gains recouped 90 percent of a record $1.7 billion jump in raw-material and energy costs. Dow is seeking to acquire a specialty-chemical maker this year to protect profit from cyclical declines in petrochemical earnings, he said.

``Dow is showing it has pricing power,'' Stephen Hoedt, an analyst at National City Corp., which owns 2.42 million Dow shares, said in an interview from Cleveland. ``The company is slowly but surely transitioning toward the specialty model they have been talking about.''

Restructuring costs and other one-time items reduced fourth- quarter net income by 35 cents a share, Dow said. A lower-than- estimated tax rate added 4 cents a share to earnings, said Goldman Sachs Group Inc. analyst Robert Koort.

Profit Forecast

Dow's divestitures and acquisitions will keep annual profit ``well north'' of $2.50 to $3 a share even when prices for ethylene and related chemicals fall to cyclical lows, perhaps in 2010, Liveris said. Profit tumbled as low as 34 cents a share in 2002, when chemical and plastics demand slumped. Full-year profit excluding some items fell to $3.76 a share last year from $4.25 in 2006 and $4.39 in 2005, Dow said.

Dow Chemical rose 35 cents, or 0.9 percent, to $37.94 at 4:19 p.m. in New York Stock Exchange composite trading. The shares have fallen 8.3 percent in the past year.

Revenue in the quarter rose 16 percent to a record $14.2 billion, including a 4 percent increase in sales volumes and 12 percent higher average prices, Dow said.

``The pricing was solid across every geography, but I was impressed by the volume gains,'' Hassan Ahmed, a New York-based analyst at HSBC Securities, said by phone. ``Dow is one of those companies that is benefiting from their non-North American exposure.''

Dow got two-thirds of its sales outside the U.S. in the quarter. Revenue rose 24 percent in Europe, aided by 18 percent higher prices. Sales gained 14 percent in the Asia-Pacific region, 17 percent in Latin America and 24 percent in the region that includes India, the Middle East and Africa, Dow said.

`Almost Shocking'

``It's almost shocking how well Europe did,'' given reports that the region's economy is slowing, National City's Hoedt said.

North American revenue rose 9.2 percent, overcoming a 2 percent decline in sales volumes, Dow said.

``The outlook in the U.S. is going to be problematic,'' as automotive and housing markets slow economic growth to about 1.5 percent in 2008, Liveris said in the interview. ``The first half is going to be really soft.''

Earnings declined in four of Dow's five units. Profit fell by more than half in the performance-plastics and performance- chemicals units, which were hurt by weakness in U.S. automotive and housing markets, HSBC's Ahmed said. Earnings fell 15 percent in the basic-plastics unit and rose 59 percent in basic chemicals, Dow said. The agriculture unit had a loss.

Joint Ventures

Earnings from joint ventures, including the Equate and MEGlobal ventures in Kuwait, jumped 21 percent to $294 million, Dow said. Last year, Dow announced ventures in Saudi Arabia, China, Libya and Brazil. Joint ventures contributed more than $1 billion to full-year earnings for the first time, Dow said.

``That tells you that their strategy of setting up these low-cost joint ventures is working,'' Ahmed said.

Dow's raw-material and energy costs tripled to $24.6 billion last year from 2002. Liveris is trying to mitigate the effect of near-record crude-oil prices.

Dow last month agreed to sell 50 percent of its commodity- plastics unit to Kuwait's Petrochemical Industries Co. for $9.5 billion. The transaction gives Dow access to cheaper raw materials and cash to buy specialty-chemical assets.

Dow may spend as much as $20 billion on an acquisition this year or use the cash on smaller purchases and a share buyback, Liveris said in the interview. Dow is focusing its acquisition search on companies that serve rapidly growing markets, including human health, energy, infrastructure, transportation and electronics, he said.

`Default Strategy'

If the company can't make an acquisition that would add to earnings in two years, Dow's ``default strategy'' is to spend the Kuwait proceeds on a ``massive'' share repurchase program in 2008, Liveris said.

``This year we are going to have to cross the Rubicon, so to speak,'' Liveris said on the call. Dow has arrived ``at the most exciting era in the history of the company,'' he said.

Net income in 2007 declined 22 percent to $2.89 billion, or $2.99 a share, as sales climbed 8.9 percent to $53.5 billion, Dow said.

Sales from specialty products, such as insulation and water- treatment filters, will rise to two-thirds of Dow's total from half after the Kuwait transaction closes late in 2008, Liveris said last month. The Kuwaiti venture will include all of Dow's plants that make polyethylene, polypropylene and polycarbonate plastics, as well as intermediate chemicals known as amines.

Dow is the world's biggest producer of ethylene, the most- used building-block chemical, used in plastics and synthetic textiles. The company also is the largest maker of polyethylene and polystyrene plastics, as well as chlorine and caustic soda.

Dow, founded in 1897, makes 3,200 products ranging from synthetic latex to pesticides at more than 150 sites in 37 countries.

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

Last Updated: January 29, 2008 16:27 EST