Dow Chemical Beats Profit Estimates as Margins Widen on Cuts

  • Profit margins expand to the highest level in a decade
  • Merger with DuPont Co. on schedule for this year, Dow says

Dow Chemical Co., which plans to merge with DuPont Co. by year-end, posted first-quarter earnings that exceeded analysts’ estimates as cost cuts and the sale of the chlorine business contributed to wider profit margins.

Earnings excluding some items were 89 cents a share, Midland, Michigan-based Dow said in a statement Thursday. The results beat the 82-cent average of 18 estimates compiled by Bloomberg. Sales fell to $10.7 billion, matching the average estimate.

Chief Executive Officer Andrew Liveris is eliminating 2,200 jobs as part of an initiative to cut expenses by $645 million ahead of the merger with DuPont, the largest ever in the chemical industry. Dow sold the chlorine operations to Olin Corp. in a $5 billion deal last year as part of an effort to pare less-profitable products. Profit margins in the quarter were the widest in a decade, Dow said.

Earnings before interest, taxes, depreciation and amortization as a percentage of sales rose for the 14th consecutive quarter, Chief Financial Officer Howard Ungerleider said in a telephone interview. “We have been taking out the below-average Ebitda margins and we have been growing the above with investments in agriculture and packaging.” he said.

On Schedule

The merger with DuPont is on schedule to close in “the back part of the year,” pending approval of Dow shareholders in a midyear vote, Ungerleider said.

Factories worldwide operated at a company-record 88 percent of capacity, Dow said.

“We see strong demand signals in North America, gradual recovery in Europe and ongoing sustainable urbanization in China,” Liveris said in a statement. “Pockets of volatility will persist, including near-term geopolitical and economic uncertainty, most notably in Brazil.”

Excluding divestitures, sales volumes climbed 4 percent, led by gains of 5 percent in the China region and 13 percent in India, while average prices fell 12 percent because of a stronger dollar and lower oil and gas values.

Earnings rose by less than 1 percent in plastics, Dow’s biggest business, and fell about 1 percent in the agriculture and infrastructure units. Profit climbed to a record in the consumer solutions unit on demand for materials used in autos and electronics, while performance materials swung to a loss as joint venture contributions fell.

The Sadara venture with Saudi Arabian Oil Co. started its second polyethylene line in April, leaving 24 more units still to begin production, Ungerleider said. said. Sadara will be a drag on earnings through most of the year until more of the complex is operating, he said.

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