Dow Chemical Profit Tops Estimates on Plastics and Corn Seed

HOUSTON (Bloomberg News) -

Dow Chemical Co., the largest U.S. chemical maker by sales, reported first-quarter profit Thursday that beat analysts’ estimates as corn-seed sales rose and lower raw- material costs boosted earnings from plastics.

Net income climbed 28 percent to $635 million, or 46 cents a share, from $497 million, or 35 cents, a year earlier, Midland, Mich.-based Dow said in a statement. Profit excluding a tax charge and other one-time items was 69 cents a share, topping the 61-cent average of 16 estimates compiled by Bloomberg. Sales declined 2.3 percent to $14.4 billion, missing the $14.9 billion average of 12 estimates.

Chairman and Chief Executive Officer Andrew Liveris is selling businesses, cutting jobs, closing plants and deferring investments to counter slower global economic growth. Lower costs for raw materials derived from natural gas and oil helped increase profit in performance plastics, Dow’s largest business, Liveris said in a telephone interview. And the agriculture unit posted record earnings.

“They beat primarily because of continuing trends in agriculture and performance plastics,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said by phone Thursday. “There are some early signs of recovery in electronics as well.”

Dow rose 5.6 percent to $33.97 at the close in New York, the biggest gain since Oct. 16. The shares have climbed 5.1 percent this year.

The company continues to plan for no “material macroeconomic improvements” globally this year, and is “focused on driving aggressive measures,” Liveris said in the statement.

Dow said it increased average prices by 1 percent in the quarter, while sales volumes declined 3 percent. The average operating rate at the company’s plants worldwide rose to 82 percent from 78 percent in the fourth quarter.

Price “momentum” is continuing in April, even though oil costs have fallen, Liveris said in the interview.

“It’s a Herculean effort to get price increase in this sort of environment,” Liveris said in a separate interview on Bloomberg Television’s “In the Loop with Betty Liu.”

Latin America led sales gains, rising 7.6 percent, followed by a 0.9 percent gain in North America. Asia-Pacific revenue fell 2.1 percent, and lower sales volumes were responsible for an 8.4-percent drop in the region encompassing Europe, the Middle East and Africa.

China is showing signs of recovery and will become less focused on exports, Liveris said. Austerity measures are preventing a recovery in Europe, he said.

“These austerity budgets are really proving to be a recipe for disaster,” Liveris said on “In the Loop.”

Liveris told analysts on a conference call Thursday that he is “confident” the company will reach $10 billion of adjusted earnings before interest, taxes, depreciation and amortization in 2015 or 2016, compared with $7.7 billion in the 12 months through March. Gains will come from cost cuts, an “imminent” tightening of global ethylene markets, higher agriculture earnings and new plants on the Gulf Coast and Saudi Arabia, he said.

The agriculture unit posted earnings of $484 million as SmartStax corn, co-developed with Monsanto Co. to tolerate multiple herbicides and kill insects, drove a 37-percent sales gain in seeds and genetic traits, Dow said. Preparations to begin marketing Dow’s Enlist weed-killer and engineered seeds narrowed agriculture margins, Liveris said.

Plastics earnings rose 33 percent to $952 million as profit margins expanded 7.2 percent on lower costs for raw materials naphtha and ethane, Liveris said.

Electronic-materials profit rose 5 percent to $273 million, as Dow gained market share in pads used to polish semiconductors and boosted Asian revenue 5 percent on new product sales, Liveris said. Dow has focused the unit on materials and technologies used in display panels, he said.

Dow has shut 17 production sites and is ahead of schedule on workforce reductions, Chief Financial Officer Bill Weideman said on the conference call. Dow said in October it would eliminate 2,400 jobs, or 5 percent of its workforce, and close 20 factories.

Dow began a process to sell its plastics-additives unit in March and will start to market the polypropylene licensing and catalyst unit in the current quarter, with transactions expected to be completed by the end of the year, Weideman said. Each will be a “significant” part of Dow’s goal, announced in March, to divest units valued at $1.5 billion, he said.