Dow Chemical earnings trail estimates as European sales drop

By Jack Kaskey

Dow Chemical Co., the largest U.S. chemical maker by sales, reported fourth-quarter earnings that missed analysts’ estimates as sales fell in Europe and Chinese growth slowed.

The company’s net loss widened to $716 million, or 61 cents a share, from $20 million, or 2 cents, a year earlier, Midland, Michigan-based Dow said today in a statement. Profit excluding restructuring costs and other one-time items was 33 cents a share, trailing the 34-cent average of 16 estimates compiled by Bloomberg. Dow fell the most since September 2011.

Sales volumes in Western Europe fell 5 percent amid an economic slowdown in the 17-nation euro region. That eroded the benefit of lower raw-material costs in the U.S., where Chairman and Chief Executive Officer Andrew Liveris is investing $4 billion in extra capacity to take advantage of increasing supplies of natural gas liquids.

“Even with an excellent feedstock advantage, this is a tough environment to grow earnings,” Jason Miner, a senior chemicals analyst with Bloomberg Industries in Skillman, New Jersey, said today by phone. “Europe is the worst point, and weak demand for chemicals in China is troubling.”

Sales fell 1.3 percent to $13.9 billion, exceeding the $13.7 billion average estimate of 12 analysts. Average product prices declined 1 percent in the quarter and sales volumes were unchanged from a year earlier, Dow said.

‘Significant Deterioration’

“The second half of 2012 saw significant deterioration in the markets we serve, particularly in China,” Liveris said in the statement.

Dow fell 5.4 percent to $32.73 at 9.35 a.m. in New York after earlier dropping as much as 7.5 percent.

Dow hasn’t increased sales volumes more than 1 percent for 10 consecutive quarters, and the global chemical industry has had no volume growth for six quarters, Miner said. While Europe has the weakest demand, ethylene production in China, the world’s largest chemicals market, fell in November and December, he said. Ethylene is the most used petrochemical.

Dow isn’t relying on global economic growth to help its performance this year, Liveris said in the statement. Cheap U.S. raw materials in the plastics unit and new technologies in agriculture, combined with announced cost-saving efforts will boost earnings, he said.

Segment Performance

Liveris announced plans in October to eliminate 2,400 jobs, or 5 percent of employees, and close 20 factories because of slowing economic growth in Europe and elsewhere. Cost savings totaling $2.5 billion and plans to divest businesses generating $1 billion in sales this year will help earnings before interest, taxes, depreciation and amortization rise to $10 billion starting in 2014 or 2015, Liveris said last month.

Fourth-quarter earnings fell in the electronics, coatings and performance-materials units, while the agriculture and plastics businesses gained. Dow’s factories ran at 78 percent of capacity, compared with 72 percent a year earlier.

Dow and Saudi Arabian Oil Co. are spending $20 billion to build jointly owned petrochemical factories at the Saudi port of Jubail to start production in 2015. Dow, which in December re- opened a shuttered ethylene plant in Louisiana, plans to build propylene plants in Texas and its first U.S. ethylene plant since 1995 to take advantage of low-cost gas.

Dow is awaiting payment of $2.16 billion in damages plus interest from Kuwait’s Petrochemical Industries Co. for canceling a 2008 agreement to buy a stake in Dow’s plastics business.

Dow, founded in 1897 as a bleach maker, is the world’s largest producer of chlorine, paint ingredients and polyethylene plastic.