Dow Chemical Profit Surges, Tops Analysts’ Estimates

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Dow Chemical Profit Surges, Tops Analysts’ Estimates
April 28, 2010, 8:50 AM EDT

By Jack Kaskey

April 28 (Bloomberg) -- Dow Chemical Co., the largest U.S. chemical maker, reported first-quarter profit that surged more than analysts estimated, boosted by higher sales of commodity plastics and rebounding demand in the U.S. and Europe.

Net income rose to $551 million, or 41 cents a share, from $24 million, or 3 cents, a year earlier, Midland, Michigan-based Dow said today in a statement. Profit excluding some items was 43 cents, topping the 30-cent average estimate of 11 analysts in a Bloomberg survey. Sales rose 48 percent to $13.4 billion.

Chief Executive Officer Andrew Liveris is selling assets after cutting workers and shutting plants last year to boost profit and pay off debt. Earnings jumped fourfold in units that supply makers of electronics, and profit from basic plastics, including polyethylene, increased more than fivefold. Sales volumes rose 11 percent in North America and Europe.

“One of the star performers was the recovery in autos, housing and electronics,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said today in an interview. “Basic plastics were even better than most were forecasting.” He rates the shares “overweight.”

Dow rose 76 cents, or 2.5 percent, to $30.83 at 8:17 a.m., before the start of regular trading on the New York Stock Exchange. The shares climbed 8.8 percent this year before today.

Excluding acquisitions and divestitures, sales increased 33 percent, with almost equal gains in volume and price, the company said. Dow’s factories ran at 83 percent of capacity, a 7 percentage-point increase from the final three months of 2009 and a level last seen in the second quarter of 2008.

Asian Sales

Gains were led by the Asia Pacific region, where revenue excluding acquisitions and divestitures rose 51 percent. Sales on that basis increased 27 percent in North America and 35 percent in Europe.

Liveris said he is growing confident in “a sustainable upturn,” while he remains concerned about construction markets in developed economies, inflation in emerging nations and sovereign debt issues in southern Europe.

“Our double-digit volume improvements in North America and Europe are positive signs that demand growth is returning to developed markets,” Liveris said in the statement. “Strengthening consumer spending in areas such as electronics, appliances and automotive, combined with strong growth in emerging geographies, are driving broad-based manufacturing momentum.”

Basic Plastics

Profit surged to $718 million from $122 million in the basic-plastics segment, the world’s largest producer of polyethylene used in bags and packaging. Dow’s plastics also benefited from lower costs for natural gas, a key raw material in the U.S., relative to oil, the ingredient used in Europe and Asia, Alembic’s Ahmed said.

Profit in the electronics and specialty materials unit jumped to $381 million from $93 million, aided by a $113 million contribution from Dow Corning Corp.

Earnings almost doubled in the performance-systems unit, which makes materials for autos and packaging, and performance products, which makes epoxy and propylene glycol.

Liveris last year eliminated 10,000 workers, slashed the dividend and sold more than $3.4 billion of assets to help repay a $9.5 billion short-term loan used to acquire Rohm & Haas Co. last April. As part of a plan to sell an additional $2 billion of assets, Dow agreed in March to divest the Styron unit, the world’s biggest producer of polystyrene plastic, to Bain Capital Partners for about $1.63 billion.

The Rohm & Haas purchase made Dow the world’s largest producer of ingredients used in paints and the largest maker of pads and slurries used by semiconductors fabricators. About 64 percent of Dow’s sales were outside North America last year.

Dow, founded in 1897 as a bleach maker, is the world’s biggest maker of chlorine, epoxy resins, polyethylene plastic and several intermediate chemicals such as propylene oxide.

(Dow Chemical will host a conference call at 10 a.m. New York time. To listen, see {LIVE <GO>}.)