Dow Chemical Profit Tops Estimates on Plastic Sales

Dow Chemical Co., the world’s second-biggest chemical maker, said third-quarter earnings dropped less than analysts estimated as sales of specialty products and commodity plastics increased.

Net income fell 25 percent to $597 million, or 45 cents a share, from $796 million, or 63 cents, a year earlier, Dow said today in a statement. Profit excluding some items was 54 cents a share, topping the 41-cent average estimate of 12 analysts in a Bloomberg survey.

Chief Executive Officer Andrew Liveris bought Rohm & Haas Co. last year to add specialty chemical units that deliver higher, consistent earnings. Adjusted profit rose 30 percent in performance systems and performance products units, which make auto plastics and foams, construction cable and heat-transfer fluids. Profit also jumped in basic chemicals and plastics.

“These were strong results,” Robert Koort, a Houston- based analyst at Goldman Sachs Group Inc., said in a report. “Much of the outperformance came from the commodity businesses.” Koort has a neutral rating on the shares.

Dow fell 54 cents, or 1.7 percent, to $30.67 at 10:30 a.m. in New York Stock Exchange composite trading. The shares gained 13 percent this year through yesterday.

Net income in the quarter was reduced by 9 cents a share from costs to integrate Rohm & Haas, an adjustment on the sale of the Styron unit, labor litigation in Latin America and debt refinancing costs, said Bob Plishka, a spokesman for Midland, Michigan-based Dow. Asset sales and other one-time items boosted earnings in the third quarter of last year by 39 cents a share.

Segment Sales Gain

Overall sales rose 6.8 percent to $12.9 billion. Excluding divestitures, revenue gained in all of Dow’s operating segments, as the company raised average prices 9 percent and volumes rose 14 percent from a year earlier. Higher prices more than made up for a $585 million increase in costs for energy and raw materials, Dow said.

Revenue gains were led by a 27 percent increase in North America, a 24 percent jump in Latin America and a 23 percent increase in the region that includes Europe. Sales in emerging economies climbed 19 percent to more than $4 billion, a company record, Dow said.

“A sustained global economic recovery, led by emerging economies, is firming,” Liveris said in the statement. “We are also encouraged to see signs of improved growth in North America and Europe, especially Germany.”

End-Market ‘Strength’

End markets such as electronics, coatings and packaging “continue to show strength” in the face of high unemployment and weak construction spending, he said. Growth in developed markets will slow “slightly” from the first half, he said.

Earnings from basic plastics rose to $731 million amid higher sales of polyethylene, the world’s most-used plastic, which is found in grocery bags and packaging. Dow’s raw-material costs benefited from cheap ethane, a natural gas derivative, relative to oil, the main feedstock used in Europe and Asia.

Jeffrey Zekauskas, a New York-based analyst at JPMorgan Chase & Co., said in a report that basic plastics accounted for all of Dow’s outperformance versus his estimates.

The improvement in plastics wasn’t a surprise, because of the cheap ethane, said Don Carson, a New York-based analyst at Susquehanna Financial Group.

Profit from basic chemicals surged to $181 million from $8 million, excluding divestures, amid higher sales of chlorine, caustic soda and vinyl. The unit was responsible for most of the earnings beat versus estimates at Susquehanna, Carson said.

“After basic chemicals, performance products did particularly well,” Carson said in a telephone interview.

Performance Products

Profit jumped 44 percent in performance products, which makes epoxy and propylene glycol, excluding a $140 million gain last year from the sale of Dow’s stake in the Optimal Group of Companies. Earnings rose 9.2 percent in the performance-systems unit, which makes materials for autos and packaging, excluding a $1 million gain from the Optimal sale.

“The upside was driven by strong results in performance products and performance systems,” David Begleiter, a New York- based analyst at Deutsche Bank AG, said in a report. Basic plastics also contributed to the earnings beat, he said.

Electronics and coatings, two divisions that primarily comprise former Rohm & Haas units, contributed $651 million to earnings. Profit rose 4.7 percent in the electronics and specialty materials unit and 5.6 percent in the coatings business.

Debt repayment helped cut Dow’s net debt to 44 percent of total capitalization, from 46 percent.

Dow, founded in 1897 as a bleach maker, is the world’s biggest producer of chlorine, epoxy resins, polyethylene plastic and several intermediate chemicals such as propylene oxide.

BASF SE is the world’s largest chemical maker by sales last year.

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

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

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