Dow Chemical Co., facing pressure from activist investor Third Point LLC to break itself in two, tripled a share buyback program to $4.5 billion and raised its dividend while posting better-than-expected fourth-quarter earnings and sales.
Profit excluding some one-time items was 65 cents a share, Midland, Michigan-based Dow said today in a statement, beating the 43-cent average of 20 analysts’ estimates compiled by Bloomberg. Sales of $14.4 billion topped the $14.1 billion average estimate. The shares rose 5.3 percent to $45.35 at 9:40 a.m. in New York.
Dow Chairman and Chief Executive Officer Andrew Liveris is under increased investor pressure to improve returns after shares gained little during his nine years leading the largest U.S. chemical maker. Third Point, founded by billionaire Dan Loeb, says Dow could add billions of dollars in profits by ending the integration of its commodity and specialty materials businesses. Liveris said today that Dow achieved its 2013 goals for cutting costs and debt, selling underperforming assets and improving earnings.
“This is clear evidence of our ability to manage all aspects of our integrated business to generate strong financial performance,” Liveris said in the statement. “We are in a strong position to further enhance shareholder value.”
Third Point, which made Dow its top holding, this month recommended spinning off commodity chemicals and plastics as a separate company. Even though Dow’s shares climbed about 27 percent in the 12 months before Loeb disclosed his stake, they trailed more focused competitors including LyondellBasell Industries NV and Westlake Chemical Corp.
Dow said today its plastics unit’s earnings before interest, taxes, depreciation and amortization excluding some items jumped 40 percent in the fourth quarter. The segment accounted for 55 percent of the company’s adjusted Ebitda as price gains and low U.S. natural gas prices widened margins.
“Margin expansion was particularly pronounced in performance plastics, but you saw margin expansion pretty much across the board,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors who recommends buying Dow shares, said today by phone.
Net income in the quarter was $963 million, or 79 cents a share, compared with a net loss of $716 million, or 61 cents, a year earlier. Dow said in a separate statement that it raised its quarterly dividend to 37 cents from 32 cents and would repurchase $4.5 billion of shares by 2014, increasing a $1.5 billion program announced last February.
Dow, the world’s largest producer of chlorine, announced plans three months ago to sell as much as $4 billion of assets, mainly chlorine-derivatives such as epoxy and vinyls. The company has divested $10 billion of assets since 2005, “a remake of the company in a very big way,” Liveris said today in an interview on CNBC. Still, he said, Third Point’s suggestions are “not all that misaligned” from Dow’s thinking.
Third Point told its investors in a Jan. 21 letter that it wants Dow to hire external advisers to review its proposal to create a separate petrochemicals company. Dow responded at the time that it welcomes constructive input and will “continue an open dialog to further enhance value.”
Dow is the latest chemical maker to come under pressure from activist investors to improve returns. DuPont Co. is preparing to spin off the unit that makes titanium dioxide pigment, Teflon and refrigerants after Trian Fund Management LP bought a stake last year.
Dow is investing $4 billion to build ethylene and propylene plants on the U.S. Gulf Coast to take advantage of natural gas liquids that are cheaper than oil-derived naphtha used to make chemicals in Europe and Asia. 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 next year.
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.
(Dow Chemical executives are scheduled to discuss results on a conference call at 9 a.m. New York time. To listen, visit http://www.dow.com/investors/events.)