Net income fell to 35 cents a share from 54 cents a year earlier, Midland, Michigan-based Dow said today in a statement. Profit excluding the cost of plant closures and job cuts was 61 cents a share, topping the 59-cent average of 15 estimates compiled by Bloomberg. Sales dropped to $14.72 billion from $14.73 billion, trailing the $15.2 billion average of nine estimates.
Dow wasn’t able to fully recoup $120 million in higher raw- material and energy costs with product prices that rose an average of 1 percent. Profit from performance plastics, the biggest unit by sales, fell 27 percent as higher costs for naphtha, an oil-derived ethylene ingredient used in Asia and Europe, outweighed the benefit of cheaper U.S. gas, Dow said.
“Performance plastics results disappointed, particularly in light of the strong U.S. ethylene margins,” Robert Koort, a Houston-based analyst at Goldman Sachs Group Inc., said today in a report. “The weaker plastics results appear due to weak margins at Dow’s Europe/Asia naphtha-based assets.”
“Despite the EPS beat, we expect Dow to underperform today based on heightened expectations going into the quarter,” Koort, who rates the shares “neutral,” said in the note.
Chairman and Chief Executive Officer Andrew Liveris said global demand for Dow’s products improved through the quarter as the U.S., Germany and other developed economies more than made up for lower-than-expected sales in China. Dow is seeing “positive signs” in transportation, construction, electronics and manufacturing, he said today in an interview.
“March showed quite a lot of strength compared with February,” Liveris said. “The momentum continues” into the second quarter, he said.
Global growth will gain momentum through the year while Western Europe outside Germany will remain in “recessionary conditions,” Liveris said on a conference call with analysts and investors.
Increasing Capacity Use
Dow’s factories ran at 84 percent of capacity in the first quarter, up 1 percentage point from a year earlier and 12 points from the fourth quarter. The rate reached 86 percent in March, Liveris said on the call.
“This period last year was quite strong, so to be able to up your operating rates isn’t bad,” Hassan Ahmed, a New York- based analyst at Alembic Global Advisors, said today in an interview.
First-quarter sales volumes rose 3 percent, excluding divestitures, led by a 12 percent gain in the agriculture unit.
Earnings before interest, taxes, depreciation and amortization climbed 11 percent to a record $451 million in the agriculture unit after warm weather allowed farmers in the northern hemisphere to plant seeds earlier than normal. About 1 cent of per-share earnings that would normally be expected in the second quarter was booked in the first because of the early start to planting, Liveris said.
Dow plans to build a $1.7 billion ethylene plant and a $1 billion propylene plant at its site in Freeport, Texas, to take advantage of the lowest gas costs in a decade. Dow also is spending $300 million at the site to produce the weed killer 2,4-D. Dow has engineered crops to tolerate the herbicide.
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, founded in 1897 as a bleach maker, is the world’s biggest producer of ethylene, chlorine, epoxy resins and linear low-density polyethylene plastic. It’s the second-biggest chemical maker by revenue behind Germany’s BASF SE. (BAS)
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