Dow Earnings Trail Estimates After Factory Outages

Dow reported second-quarter profit that trailed estimates
Andrew Liveris speaks in Houston. Photographer: F. Carter Smith/Bloomberg

Aug. 3 (Bloomberg) -- Dow Chemical Co., the largest U.S. chemical maker, posted second-quarter profit that trailed analysts’ estimates after adverse weather curbed crop-chemical demand and plants in Texas and Argentina unexpectedly shut.

Net income was $651 million, or 50 cents a share, compared with a net loss of $344 million, or 47 cents, a year earlier, Midland, Michigan-based Dow said today in a statement. Profit excluding some items was 54 cents, less than the 57-cent average estimate of 11 analysts in a Bloomberg survey. The shares fell the most in more than a year.

Dow lost $300 million in revenue because of the monthlong closure of its polyethylene plant in Argentina and disruption to operations at the Deer Park and Oyster Creek plants in Texas, Chief Executive Officer Andrew Liveris said. Wet weather in the U.S. and cold conditions in Europe affected pesticide applications while flooding in Canada left millions of acres unplanted, Dow said.

“It’s a disappointing quarter,” David Begleiter, a New York-based analyst at Deutsche Bank AG who has a “buy” recommendation on the shares, said by telephone. “There were some outages and pricing pressure in crop chemicals, nothing that is worrisome longer term.”

The shares fell $2.83, or 10 percent, to $25.50 at 4:24 p.m. in New York trading, the biggest decline since March 9, 2009. They have dropped 7.7 percent this year.

‘Guardedly Optimistic’

Sales rose 20 percent to $13.6 billion with gains in every operating segment.

The company’s factories ran at 86 percent of capacity in the quarter, excluding outages, compared with 83 percent in the first quarter. Excluding acquisitions and divestitures, sales volumes gained 7 percent and prices climbed 19 percent from a year earlier, Dow said.

“Our U.S. macroeconomic view remains guardedly optimistic,” Liveris said in the statement. “We continue to have confidence that momentum is gradually building, and we have not changed our view of a sustained global recovery led by Asia, slowly helped by the U.S. recovery, but with Europe lagging.”

Competing chemical companies DuPont Co., BASF AG, Eastman Chemical Co., PPG Industries Inc. and Celanese Inc. have topped earnings estimates in the most recent quarter. Dow’s miss would have been wider without a lower-than-expected tax rate, which raised profit by about 5 cents a share, Begleiter said.

“In the context of almost every other chemical company beating estimates by a wide margin, this does stand out as a negative,” he said.

Herbicide Prices

The polyethylene plant in Argentina is Dow’s largest in Latin America, company spokesman Bob Plishka said. Deer Park makes methyl methacrylate, an ingredient in paints, and Oyster Creeks makes phenol, which is used to make specialty plastics.

In Dow’s agriculture unit, sales rose 6 percent, the smallest gain among six operating segments. Falling prices for glyphosate herbicide reduced overall crop chemical prices, the company said.

“One of your main emerging markets plants being out obviously pulls profitability down, which to me kind of explains the miss,” said Hassan Ahmed, a New York-based analyst at Alembic Global Advisors who has an “overweight” rating on Dow shares. “Europe had a bizarre agriculture season: Cold and not moist enough.”

Monsanto Co., the world’s largest seed company, and Syngenta AG, the largest maker of crop chemicals, also posted profit that trailed analysts’ estimates.

Chlorine Demand

The basic-chemicals segment posted a $100 million profit, after a $107 million loss a year earlier, because of rising demand for chlorine, caustic soda and vinyl chloride. Earnings from basic plastics rose 42 percent to $696 million.

Profit in the electronics and specialty materials unit jumped 65 percent to $453 million amid rising demand for products used to make flat-panel displays.

Profit in the coatings unit climbed 88 percent to $207 million. Earnings rose 5 percent in the performance-systems unit, which makes materials for autos and packaging, and profit gained 35 percent in performance products, which makes epoxy and propylene glycol.

Dow’s planned chemicals and plastics venture with Saudi Aramco, the world’s largest state-owned oil company, will be built in Jubail on the Persian Gulf coast, rather than Ras Tanura in Saudi Arabia’s Eastern province, the companies said in a separate statement. They expect to complete engineering and design on the facility by mid-2011.

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

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