Dow Chemical Earnings Trail Estimates After Demand Drops
Dow Chemical Posts Unexpected Loss After Plastics Sales Drop
Frank Polich/Bloomberg
The Dow Chemical Co. plant stands in Midland, Michigan.
The Dow Chemical Co. plant stands in Midland, Michigan. Photographer: Frank Polich/Bloomberg
Dow Chemical Co. Chief Executive Officer Andrew Liveris
Ramin Talaie/Bloomberg
Dow Chemical Co. Chief Executive Officer Andrew Liveris.
Dow Chemical Co. Chief Executive Officer Andrew Liveris. Photographer: Ramin Talaie/Bloomberg
Dow Chemical Co. (DOW), the largest U.S. chemical maker, posted fourth-quarter results that trailed analysts’ estimates after falling demand for materials used in windmills and autos contributed to lower global sales volumes.
A net loss of 2 cents a share compares with net income of 37 cents a year earlier, Midland, Michigan-based Dow said today in a statement. Profit excluding an allowance for deferred taxes in Brazil, asset-impairment costs and other one-time items was 25 cents a share, trailing the 31-cent average of 17 estimates compiled by Bloomberg.
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 tumbled 33 percent in the performance-materials unit on lower demand from makers of wind turbines and auto parts.
“Performance materials reported the weakest earnings relative to our expectations,” Don Carson, an analyst at Susquehanna Financial Group who rates the shares “positive,” said today in a note. Higher tax and interest expenses also contributed to the earnings miss, he said.
Dow fell 1.2 percent to close at $33.54 in New York. The shares have gained 17 percent this year.
Prices Rise
Revenue rose 2.4 percent to $14.1 billion from $13.8 billion, as average prices climbed 5 percent and sales volumes dropped 3 percent. Price gains fully recouped a $476 million increase in costs for raw materials and energy, Dow said.
Sales volumes fell 4 percent in North America, partly because of asset sales, 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 from a year earlier. Rates rebounded in December, Liveris said on a conference call.
“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 in a note.
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.”
Asian Demand
U.S. and Asia demand is rising in the current quarter, particularly for materials used in electronics and autos, Liveris said today in a telephone interview.
“Order books are looking good for January,” Liveris said in the interview. “Asia is coming back.”
Fourth-quarter profit from plastics, Dow’s biggest unit, tumbled 29 percent as costs rose for ethane and other raw materials, squeezing margins for resins such as polyethylene.
Plastics margins should expand on lower ethane costs in the first half, Liveris said on the call.
Ethane (LPGSMBPE) will be “structurally” lower by 2013 when new pipelines increase supply to the Gulf Coast, he said. That assessment is at odds with pipeline builder Enterprise Products Partners LP, which has said demand from chemical makers will keep ethane in short supply for several years.
Dow, which generated $2 billion in cash from operations in the fourth quarter, is focused on funding announced projects and paying dividends to shareholders, not on mergers and acquisitions, Liveris said.
‘M&A Averse’
“We are very, very M&A averse,” he said in the interview.
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.
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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