Dow Chemical earnings top estimates after gains at plastics unit

By Jack Kaskey
Bloomberg News

Dow Chemical Co., the largest U.S. chemical maker by revenue, posted second-quarter earnings that beat analysts’ estimates after improved transportation and packaging demand helped its plastics unit.

Net income rose to $1.87 a share from 55 cents a year earlier, Midland, Michigan-based Dow said today in a statement. Excluding a payment that followed the resolution of arbitration with Petrochemical Industries Co. of Kuwait, earnings were 64 cents, beating the 62-cent average of 17 estimates compiled by Bloomberg.

Revenue was little changed at $14.6 billion, topping the $14.5 billion average of 12 estimates.

Chairman and Chief Executive Officer Andrew Liveris is investing $4 billion to expand production in the U.S., where an abundance of natural gas from drilling in shale formations has made U.S. plastics competitive with the Middle East. Earnings before interest, taxes, depreciation and amortization rose 33 percent in the plastics unit.

“Plastics margins in the U.S. are up quite strongly,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors who recommends buying Dow shares, said by phone yesterday. “The whole amalgam grew nicely in the quarter.”

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Dow fell 0.5 percent to $34.37 yesterday in New York. The shares have gained 6.3 percent this year.

Prices for ethane, the primary raw material used to make polyethylene plastics in the U.S., fell to an average 23.9 cents a gallon in Texas during the second quarter, from 28.3 cents a year earlier, according to data compiled by Bloomberg.

K-Dow Settlement

Dow received $2.19 billion in May from Petrochemical Industries as compensation for the cancellation of a plastics joint venture more than four years ago. Dow used some of the cash to redeem $1.25 billion of securities as part of a plan to reduce interest costs.

The failure of the venture in December 2008 deprived Dow of a $9 billion payment during the financial crisis, almost derailed its 2009 purchase of Rohm & Haas Co. and prompted the company’s first dividend cut.

Dow, founded in 1897 as a bleach maker, is the world’s biggest producer of chlorine, epoxy resins and polyethylene plastic. It’s the world’s second-biggest chemical maker behind Germany’s BASF SE.