Dow Chemical Profit Trails Estimates as Europe Sales Drop

Dow Chemical Co., the largest U.S. chemical maker by sales, reported fourth-quarter earnings that missed analysts’ estimates as sales fell in Europe and Chinese growth slowed.

Profit excluding restructuring costs and other one-time items was 33 cents a share, trailing the 34-cent average of 16 estimates compiled by Bloomberg. The company’s net loss widened to $716 million, or 61 cents a share, from $20 million, or 2 cents, a year earlier, Midland, Michigan-based Dow said today in a statement. Dow fell the most since September 2011.

Sales volumes in Western Europe fell 5 percent amid an economic slowdown in the 17-nation euro region. That eroded the benefit of lower raw-material costs in the U.S., where Chairman and Chief Executive Officer Andrew Liveris is investing $4 billion in extra capacity to take advantage of increasing supplies of natural gas liquids.

“Even with an excellent feedstock advantage, this is a tough environment to grow earnings,” Jason Miner, a senior chemicals analyst with Bloomberg Industries in Skillman, New Jersey, said today by phone. “Europe is the worst point, and weak demand for chemicals in China is troubling.”

Sales fell 1.3 percent to $13.9 billion, exceeding the $13.7 billion average estimate of 12 analysts. Average product prices declined 1 percent in the quarter and sales volumes were unchanged from a year earlier, Dow said.

‘Significant Deterioration’

“The second half of 2012 saw significant deterioration in the markets we serve, particularly in China,” Liveris said in the statement.

Dow fell 7 percent to $32.20 at the close in New York, the biggest decline since Sept. 28, 2011. The shares are little changed this year.

The global chemical industry has had no sales volume growth for six quarters and Dow saw its volumes gain just 1 percent in 2012, Miner said. While demand is weakest in Europe, ethylene production in China, the world’s largest chemicals market, fell in November and December, he said. Ethylene is the most used petrochemical.

Dow isn’t relying on global economic growth to help its performance this year, Liveris said on a conference call with analysts. Cheap U.S. raw materials in the plastics unit and new technologies in agriculture, combined with cost-saving efforts will boost earnings, he said.

U.S. ethane prices, which tumbled 66 percent in the quarter and hit a multiyear low of 21.5 cents a gallon on Jan. 9, will probably remain below 30 cents for several years, Liveris said on the call. U.S. ethane and propane supplies will exceed demand through 2017, according to a slide presentation.

Segment Performance

Liveris announced plans in October to eliminate 2,400 jobs, or 5 percent of employees, and close 20 factories because of slowing economic growth in Europe and elsewhere. Cost savings totaling $2.5 billion and divesting businesses generating $1 billion in sales will help adjusted earnings before interest, taxes, depreciation and amortization rise to $10 billion starting in 2014 or 2015, Liveris said last month.

Adjusted Ebitda last year was $7.5 billion as sales declined 5.3 percent to $56.8 billion, Dow said. Net income for the full year dropped 65 percent to $842 million, or 70 cents a share.

Fourth-quarter earnings fell in the electronics, coatings and performance-materials units, while the agriculture and plastics businesses gained. The coatings unit, which makes paint ingredients, and performance materials, which makes polyurethane foams and epoxy resins, trailed expectations, Jeffrey J. Zekauskas, a New York-based analyst at JP Morgan Chase & Co., said in a note.


Ethylene margins will expand globally as rising demand for plastics and other ethylene derivatives boosts industry operating rates to 90 percent of capacity in 2014, from 88 percent last year, Dow said in the presentation. Plastics Ebitda will climb to $5 billion a year at the peak of the cycle, Liveris said.

A pending long-term ethylene supply agreement would reduce capital spending on Dow’s new Texas plant, scheduled to start in 2017, Liveris said.

Dow is awaiting payment of $2.16 billion in damages from Kuwait’s Petrochemical Industries Co. for canceling a 2008 agreement to buy a stake in Dow’s plastics business. A final award increasing the payment to $2.5 billion with interest and costs should be released next month, Liveris said today. The cash will be used to improve the balance sheet, he said.

Dow, founded in 1897 as a bleach maker, is the world’s largest producer of chlorine, paint ingredients and polyethylene plastic.

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