Dow Chemical Profit Rises on Sales of Caustic Soda, Seeds

Dow Chemical Co. (DOW), the largest U.S. chemical maker, reported third-quarter profit that rose 51 percent on higher sales of agriculture products and caustic soda.

Net income increased to $900 million, or 69 cents a share, from $597 million, or 45 cents, a year earlier, Midland, Michigan-based Dow said today in a statement. Earnings excluding a one-time gain at a plastics venture were 62 cents a share, trailing the 63-cent average of 16 estimates compiled by Bloomberg, the first earnings miss in five quarters. Revenue climbed 17 percent to $15.1 billion from $12.9 billion.

Chief Executive Officer Andrew Liveris is expanding in Saudi Arabia and on the U.S. Gulf Coast to turn oil and low-cost natural gas into chemicals used in food packaging and auto parts. The unit that makes caustic soda surged 71 percent on higher prices. The agricultural sciences unit was boosted by demand from Latin America.

“Five of the six businesses had a great quarter,” Paul Leming, a New York-based analyst at Ticonderoga Securities who rates the shares “buy,” said today in a phone interview. The plastics unit disappointed, he said.

The plastics business remained Dow’s most profitable in the quarter even as earnings dropped 17 percent to $748 million because of higher ethylene production costs and lower demand in developed markets.

Dow rose 8.2 percent to $29.10 in New York.

Dow shares fell 38 percent in the third quarter, a sign that investors expected earnings to plummet, Hassan Ahmed, a New York-based analyst at Alembic Global Advisors who rates Dow “buy,” said today in a phone interview. “The market was expecting a blood bath which we really didn’t see,” Ahmed said.

‘Bright Spots’

“Headwinds in developed regions continue to restrain consumer spending and business investment,” Liveris said in the statement. “However, in emerging regions, growth in the middle class continues to drive demand, particularly as it pertains to infrastructure and urbanization.”

“And we continue to see bright spots in recession- resistant sectors such as agriculture, food packaging, energy and water,” he said.

Excluding divestitures, Dow increased product prices 17 percent from the year-earlier quarter and sales volumes were unchanged. Price gains outpaced $1.7 billion of higher costs for raw materials and energy, Dow said.

Seeds, Herbicide

The agricultural unit posted earnings before interest, tax, depreciation and amortization of $75 million, compared with a year-earlier loss of $12 million. Sales volumes rose 18 percent and average prices gained 9 percent, driven by herbicides and corn seeds. Dow said it grabbed nearly 20 percent of the U.S. cotton seed market in 2011, adding 10 percentage points in two years.

Profit in the feedstocks and energy division surged to $263 million from $154 million as average prices jumped 36 percent, aided by caustic-soda demand from makers of alumina and pulp and paper, the company 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 its first U.S. cracker, as ethylene plants are called, 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 by revenue behind Germany’s BASF SE.

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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