Dow Chemical Profit Tops Estimates as Plastics Demand Rises

  • CFO says plastics earnings to remain strong in second half
  • Dow increased sales volumes in every region of the world

Dow Chemical Co., which plans to complete a historic merger with DuPont Co. this year, reported second-quarter profit that exceeded analysts’ estimates amid rising demand for plastics, the company’s leading product.

Operating earnings rose to 95 cents a share, Midland, Michigan-based Dow said in a statement Thursday. That beat the 85 cent average of estimates compiled by Bloomberg. Sales declined 7.4 percent to $12 billion, compared with the $11.2 billion estimate.

The plastics unit, Dow’s biggest, benefited from 12 percent higher sales volumes, driven by packaging, transportation and infrastructure markets. Chief Executive Officer Andrew Liveris has sold off less profitable commodity businesses such as chlorine while cutting costs. Dow raised prices in the first half for products such as polyethylene, a flexible plastic used in shopping bags.

“Anything consumer-facing is doing fine, and Dow plays nicely to that,” Matt Arnold, an analyst at Edward Jones, said by phone Thursday. “That allowed volumes to hold up even though industrial-facing businesses were down.”

Dow climbed 0.6 percent to $53.95 at 9:05 a.m. in New York before the start of regular trading. The shares climbed 4.2 percent this year through Wednesday.

‘Earnings Ridge’

The plastics operation can continue to post relatively high earnings in the second half, because U.S. producer inventories are low and demand is robust, Chief Financial Officer Howard Ungerleider said.

“We are in the middle of an earnings ridge,” Ungerleider said by telephone. “Maybe not a peak, but an earnings ridge.”

The quarter’s results also benefited from an initiative to reduce annual costs by $300 million, the CFO said. Sales volumes rose in every region.

“The Dow team found growth in every pocket of the world,” Ungerleider said.

The volume gains were offset by average prices that tumbled 10 percent despite increases for some products. Prices followed the path of the company’s oil- and gas-based raw materials, the CFO said.

Dow Corning

Dow took full control of its Dow Corning Corp. silicone venture June 1, resulting in a one-time gain that more than doubled net income to $3.12 billion, or $2.61 a share. Dow’s silicone acquisition boosted sales volumes by 19 percent in the consumer solutions business, which posted record earnings. Profit excluding some items also rose in the infrastructure solutions and plastics units, while earnings fell in the agriculture and performance materials units.

The chemical maker is cutting 4,700 jobs, including 2,500 from the Dow Corning transaction, ahead of the $60 billion DuPont combination, the largest deal ever in the chemical industry. DuPont on Tuesday reported adjusted quarterly earnings of $1.24 a share, beating analysts’ estimates, as cost cuts helped boost profit in every business segment.

The company is seeing “healthy demand” in North America, led by consumer strength, and a “measured recovery” in Europe, Liveris said in the statement. Latin America is beginning to improve from a low base, he said.

DuPont Merger

Dow and DuPont shareholders last week approved the 50-50 merger of the two largest U.S. chemical makers. The all-stock transaction is scheduled to close later this year and is supposed to be followed in 2018 by a split into three publicly traded companies focused on agriculture, specialty products and materials science.

Liveris will become chairman of the combined company, DowDuPont Inc., while his counterpart at DuPont, Ed Breen, will serve as CEO. The companies are now focused on winning clearance from antitrust regulators in the U.S., European Union, China and Brazil.

Discussions are proceeding as expected and the deal is on pace to close by the end of the year, Ungerleider said.

“Time will tell, but so far we have hit every milestone that we laid out,” he said.

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