Dow Q2 net profit drops 27% as costs bite

24 July 2008 12:22  [Source: ICIS news]

LONDON (ICIS news)--Second-quarter net profits for Dow Chemical plunged 26.7% to $762m from $1.04bn on surging hydrocarbon and energy costs, the US chemical company said on Thursday.

Earnings per share for the quarter were $0.81 from $1.07.

The largest chemicals company in the US said that purchased feedstock and energy costs were $2.4bn higher for the quarter compared with the year earlier period.

Dow lifted sales 23.5% to $16.38bn and implemented emergency measures to stave off the worst impacts of rapidly rising costs.

Double-digit price increases were recorded in all operating segments and geographic areas, it said. Sales volumes were 5% higher with 12% growth outside North America and an 11% volume increase in Europe.

“The surge in oil prices from first to second quarter added another $1bn of cost sequentially, and we reacted quickly by announcing two broad-based price increase initiatives, adjusting plant operating rates and implementing additional cost-cutting measures,” said CEO Andrew Liveris.

"The fast implementation of these price increases limited margin compression over our hydrocarbon and energy costs to approximately $130m in the quarter. This is a remarkable performance when you consider that this is only 1-2% of our total quarterly hydrocarbon and energy costs.

“These short-term actions, in addition to key elements of Dow’s strategy, such as our large global footprint, our investments in the performance businesses and our asset-light ventures, enabled us to weather unparalleled increases in hydrocarbons, supply chain and other costs,” Liveris added.

Operating profits from Dow’s agriculture businesses were 61.1% higher at $335m from $208m but profits were down in its performance chemicals and performance plastics reporting segments.

Earlier in July Dow revealed its agreed bid for specialties maker Rohm and Haas which is expected to significantly increase the percentage of sales and profits it makes from performance products.

Operating profit from the basic plastics businesses was down 26.7% at $388m while basic chemicals profit slumped to $29m from $165m.

“We believe the US economy will continue to weaken for the rest of 2008 and that the outlook for the global economy will remain uncertain,” Liveris said.

“Despite this, our results have demonstrated that our strategy for diversification on a global and end-use market basis has allowed us to manage through these challenging times,” he added.

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By: Nigel Davis
+44 20 8652 3214

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