Dow Chemical Earnings Miss Estimates as Epoxy Unit Declines

Dow Chemical Co. (DOW), the largest U.S. chemical maker by revenue, reported profit that trailed analysts’ estimates amid higher costs and lower sales in the unit that makes epoxy, used in plywood and can linings.

Third-quarter net income rose to $594 million, or 49 cents a share, from $497 million, or 42 cents, Midland, Michigan-based Dow said today in a statement. Profit excluding restructuring costs was 50 cents a share, missing the 54-cent average of 16 estimates compiled by Bloomberg. Sales rose 0.7 percent to $13.7 billion, less than the $14 billion average estimate.

Earnings in the performance-materials unit, which makes chlorine derivatives such as epoxy, fell 36 percent. Chairman and Chief Executive Officer Andrew Liveris said on a conference call today that he’s expanding a plan to divest $1.5 billion of assets to as much as $4 billion, including epoxy and vinyls.

“In performance materials, the impact from higher oil and higher propylene was a little more than most people expected,” John Roberts, a New York-based analyst at UBS AG who recommends buying the shares, said by phone today.

Dow dropped 1 percent to $40.62 at the close in New York. The shares have gained 26 percent this year.

Photographer:Frank Polich/Bloomberg

The Dow Chemical Co. headquarters stands in Midland, Michigan,. Close

The Dow Chemical Co. headquarters stands in Midland, Michigan,.

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Photographer:Frank Polich/Bloomberg

The Dow Chemical Co. headquarters stands in Midland, Michigan,.

Plastics Gain

A jump in September hydrocarbon prices didn’t give Dow enough time to recoup the extra cost, eroding earnings, Liveris said today in an interview on Bloomberg Television’s “In the Loop with Betty Liu.”

The agriculture segment had the biggest drop, with earnings before interest, taxes, depreciation and amortization tumbling 71 percent as North American farmers increased returns of unused seed and sales of seeds and genetic licenses declined 4 percent.

The best-performing unit was performance plastics, where earnings climbed 32 percent on higher pricing. Profit at the coatings unit rose 15 percent, the first year-over-year gain in five quarters, as prices and sales volumes improved.

The company agreed on Oct. 11 to sell its polypropylene licensing and catalyst unit to W.R. Grace & Co. for $500 million as part of its March plan to divest $1.5 billion of underperforming assets by the second half of 2014.

Targeted Assets

Liveris said he now plans to divest $3 billion to $4 billion of units within two years, and many of the newly targeted assets use chlorine as a raw material. Dow is the world’s largest chlorine producer and Liveris said he plans to retain capacity to supply raw materials for plastics packaging, crop chemicals and other higher-margin products.

Photographer: Jin Lee/Bloomberg

Dow Chemical Co. Chairman and Chief Executive Officer Andrew Liveris is expanding production of commodity chemicals and plastics with new factories in Saudi Arabia and the U.S. as he considers selling slower-growing units such as chlorine derivatives and epoxy. Close

Dow Chemical Co. Chairman and Chief Executive Officer Andrew Liveris is expanding... Read More

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Photographer: Jin Lee/Bloomberg

Dow Chemical Co. Chairman and Chief Executive Officer Andrew Liveris is expanding production of commodity chemicals and plastics with new factories in Saudi Arabia and the U.S. as he considers selling slower-growing units such as chlorine derivatives and epoxy.

“A different owner is better positioned to extract maximum value long-term from portions of our chlorine and derivatives assets such as epoxy resins, chlorinated organics, and the vinyls chain,” Liveris said on the call with analysts.

Cash from the sales should allow Dow to boost its dividend and increase share repurchases, UBS’s Roberts said.

Dow plans to cut $100 million of costs from the epoxy unit, where margins have compressed because of excess capacity in China, even as it pursues a “near term” sale or joint venture for the business, Liveris said. Costs in the polyurethanes unit, which the company plans to retain, will be cut by a similar amount, he said.

Dow is investing $4 billion to build ethylene and propylene plants on the U.S. Gulf Coast to take advantage of low-cost natural gas liquids. Sadara Chemical Co., a venture of Dow and Saudi Arabian Oil Co., is due to start production at a $19.3 billion complex in Saudi Arabia in the second half of 2015.

Dow, founded in 1897 as a bleach maker, is the world’s biggest producer of epoxy resins and some grades of polyethylene plastic. It’s the world’s second-biggest chemical maker by sales after 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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