By JACK KASKEY
Dow Chemical, the largest US chemical maker, posted
better-than expected profit for the first quarter after its
plastics unit sold out and sales volumes increased at the
companys paints ingredients business.
Net income rose to 79 cents/share from 46 cents a year
earlier, Midland, Michigan-based Dow said. That topped the
71-cent average of 17 estimates compiled by
Plastics, Dows biggest business by revenue, saw profit
gain 5% on higher prices. CEO Andrew Liveris said the unit
has the advantage of energy and raw materials that are
relatively cheaper in North America amid a boom in gas
production from shale rock. Dow is adding plastics capacity
in Saudi Arabia and the US, which will use low-cost natural
gas liquids such as ethane, starting next year.
We are sold out globally in plastics, he said in
a telephone interview. The industry is not sold out,
because most of the industry is located outside North America
running on high cost inputs.
Dow rose 2.2% to $50 at 8:43 a.m. before the start of regular
trading in New York.
In an otherwise volatile energy quarter, these guys
managed to generate year-on-year earnings margin
growth, said Hassan Ahmed, a New York-based analyst at
Alembic Global Advisers who recommends buying the shares.
No one was expecting beats from anybody because of
North American weather, so for these guys to handily grow
earnings, its impressive.
Sales climbed to $14.5 billion from $14.4 billion, missing
the $14.7 billion average of 13 estimates.
The coatings segment, which supplies paint makers, posted a
20% gain in profit. The agriculture unit reported higher
earnings on improved pesticide sales and cost cuts.
Across all products, Dows average realized prices were
unchanged. On a segmental basis, the plastics unit recorded
the only gain, with prices rising 4%. Company-wide volumes
increased 1%, led by a 6% improvement in coatings.
Dow said its costs for energy and raw materials rose $300
million. Propane, a natural gas liquid used to make propylene
and plastics, spiked to a record in the US during the quarter
amid an unusually severe winter.
Third Point LLC, the hedge fund founded by activist investor
Dan Loeb, said in a Jan. 21 letter that Dow is its top
holding and could add billions of dollars to earnings by
spinning off commodity chemicals and plastics. Dow on Feb. 12
rejected the proposal, saying commodities need to be
integrated with specialty products to maximize value for all
Dow today reiterated its plan to sell underperforming assets
worth $4.5 billion to $6 billion by the end of 2015.
In January, Dow tripled its share buyback program to $4.5
billion and raised its dividend. The company said today it
repurchased $1.25 billion of shares in the first quarter.
Sadara, Dows $20 billion joint venture with Saudi
Arabian Oil Co., is scheduled to begin production at its
first units in late 2015. Dow also is building plants in the
US to convert inexpensive shale gas into propylene and
ethylene. Dow expects the US and Saudi project
s to add $3 billion to
annual earnings after 2017.