Dow Chemical Profit Tops Estimates, Helped by Oil DropJack Kaskey
Dow Chemical Co., the largest U.S. chemical company, posted better-than-expected fourth-quarter earnings as lower oil and natural-gas costs helped improve margins at its plastics business.
Profit excluding some items was 85 cents a share, Midland, Michigan-based Dow said in a statement Thursday, exceeding the 70-cent average of analysts’ estimates compiled by Bloomberg. Dow rose 4.6 percent to $45.01 in New York.
Margins expanded in every Dow segment. Performance plastics, its largest unit, benefited as prices fell for oil-based raw materials in Europe and gas liquids in the U.S., helping to overcome lower product prices, Hassan Ahmed, a New York-based analyst at Alembic Global Advisors who recommends buying the shares, said by phone.
“People were looking for margin compression in performance plastics because of oil,” Ahmed said. “They were looking for that in error.”
Dow said stronger plastics demand contributed to the fifth consecutive quarter of improved operating rates at its factories worldwide.
“Tightening supply and demand is acting to offset some of the challenges that are a result of falling oil prices,” Dow Chairman and Chief Executive Officer Andrew Liveris said in the statement. “We believe lower oil prices are a relative positive for Dow and a boost for the global economy.”
Earnings in the plastics unit gained 5.9 percent to $1.19 billion, excluding a gain from the sale of a business in the year earlier period. Sales fell as average prices dropped 6 percent and sales volumes gained 3 percent.
Plastics is part of the petrochemicals operations that activist investor Dan Loeb said last year should be spun off. In November, Dow agreed to give Loeb’s hedge fund Third Point LLC two seats on the chemical company’s board, along with two other independent directors. The accord avoided a proxy fight with Third Point.
Liveris has defended the company’s integrated model. He’s argued that Dow is more profitable because it produces commodity chemicals for use in higher-value products such as pesticides and plastic films for packaging.
Liveris will probably view the earnings beat as vindication of his integrated strategy, John Roberts, a New York-based analyst at UBS AG, said by phone Thursday.
“Even with the two board members coming in from Third Point, there is clearly no change in what Andrew thinks they ought to do,” Roberts said.
Dow said it has now notched nine straight quarters of margin and earnings gains.
“Against the backdrop of ongoing macroeconomic, currency and energy market uncertainty, we continue to see positive underlying demand fundamentals,” Liveris said,
Liveris told investors and analysts at a November meeting that margins will widen with the sale of less-profitable assets and earnings will climb as new plants open in Texas and Saudi Arabia.
Dow has restored its dividend to its pre-financial crisis level and in November boosted its share buyback plan to $9.5 billion. It’s also trying to sell as much as $8.5 billion of low-margin assets, including the company’s chlorine business.
Fourth-quarter net income fell to 63 cents a share from 79 cents a year earlier. Sales were essentially unchanged at $14.4 billion, compared with the $14.5 billion average estimate.
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