US Dow posts surprise profit behind strong cost control

30 April 2009 17:43  [Source: ICIS news]

Dow CEO Andrew LiverisHOUSTON (ICIS news)--Dow Chemical was able to turn a projected first-quarter net loss into a $24m (€18m) profit primarily on cost-cutting and higher efficiency, executives with the largest US chemicals producer said on Thursday.

“The path is very clear to us,” CEO Andrew Liveris said during an earnings conference call. “We know that operational excellence and cost discipline are two hallmarks of Dow, and it shows particularly well at this time.”

Research firm Deutsche Bank, which had projected a 21 cents/share loss for the quarter, said the surprise profit was due to “exceptional cost control and price/volume management”. Dow posted a 12 cents/share profit.

Operating costs fell by $270m in the quarter, while prices fell 20% and purchased feedstock and energy costs dropped by 49%.

Dow said it was still on track to reduce its 2009 full-year capital expenditures to $1.1bn, down nearly 50% from $2.1bn a year ago, and set $2.5bn as a goal for cost savings by the end of 2010.

The company, whose profit still marked a 97% decline from the 2008 first quarter, said plant shutdowns and job cuts would continue to be leading methods to reach intended savings.

In December, Dow said it would cut 5,000 full-time jobs, 6,000 contractors, permanently close 20 facilities and temporarily close 180 more in high-cost locations across the company by the end of 2010.

“We have made enormous strides by any measure,” Liveris said of the company’s first-quarter performance. “I’d like to stress that our operating plan [for the year] assumes no help from the market in terms of an improved business climate. But trend lines are moving in our favour in some spots, and that would help even more.”

The company said demand had risen significantly from the low point in December, and that the period of inventory destocking was simply an “overcorrection” that has since come to a close.

“We expect the recession environment to continue through the end of the year, but have seen some moderation in the pace of decline,” Liveris said.

The company’s profit was led by its agricultural sciences sector, which posted a new quarterly sales record of $1.4bn behind growth in corn and soybean sales. Volume was up 10% compared with the 2008 first quarter.

The company’s basic chemicals, basic plastics, performance chemicals and performance plastics segments all declined by at least 35% from year-ago levels, but the company said positive signs in each segment were visible by March.

For example, polyethylene (PE) sales increased 10% from the fourth quarter and were down only 4% year-on-year, the company said.

Epoxy volumes increased by 47% in March, polyurethane by 34%, and specialty plastics by 18%, the company said.

“March was the best sales month since October of last year,” Liveris said. “We are encouraged. It made up for December, when demand collapsed.”

On a regional basis, Liveris said the most progress has come in China, where the government’s economic stimulus was leading to an uptick in consumer demand.

“The bottom has been reached in China on durable goods,” Liveris said. “We’re starting to see some real bright spots.”

Sales in the US and Europe are still lagging, due largely to recession effects, he added.

Dow closed on its $19bn deal with Rohm and Haas on 1 April, after the end of the first quarter, so Rohm’s results were not fully included in the earnings report, the company said. Likewise, Dow’s $1.7bn sale of Morton Salt to K+S was not included, since that transaction was not expected to close until mid-2009.

However, Dow said that sale contributed to the sense of optimism going forward since it exceeded its $1.5bn expected price - even though analysts labelled the $1.7bn price as too low.

Investors responded very positively to the earnings report. Dow traded at $15.94/share in mid-day Thursday trading on the New York Stock Exchange, up 18% from Wednesday’s close.

($1 = €0.75)

For more on Dow Chemical visit ICIS company intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Ben DuBose
+1 713 525 2653

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index