Dow cuts costs and turns profit; outlook cautious

By SANDY SHORE

posted: 35 DAYS 5 HOURS AGO

Text SizeAAA

-Better but not good was the third-quarter message from Dow Chemical Co., which produces basic ingredients used to make everything from automobiles to toys and diapers.

What Dow sells makes its way into so many products that the company's performance and what it sees coming can serve as an early barometer for consumer sentiment.

The company, based in Midland, Mich., saw a modest uptick in revenue from the second quarter, even in chemicals used in the distressed housing and automobile industry. That suggests the market has stabilized somewhat, said Andrew Liveris, Dow's chairman and CEO.

Yet through next year, Liveris said, "operating plans do not count on material improvements in market conditions and we remain tightly focused on those factors we can control, such as costs."

Dow has spent the past nine months slashing costs by cutting thousands of jobs, closing facilities and selling assets to lower debt.

Where the company is seeing strong growth is not at home, but in China. About 13 percent of Dow's pro forma sales are in the Asia Pacific, and 38 percent are in North America.

"There are challenges that certainly remain out there, particularly in mature economies such as those of the United States and Western Europe," Liveris said. "In these areas, the economic recovery remains somewhat muted."

Unemployment, Liveris said, will continue to be a drag on consumer spending.

Dow did boost its net income in the third quarter for the first time this year because the cost of raw materials fell and volume in advanced materials rose.

For the July through September quarter, Dow Chemical reported net income of $711 million, or 63 cents per share, compared with $428 million, or 46 cents per share a year ago. Excluding one-time benefits and losses, Dow earned 24 cents per share.

Revenue fell 22 percent, to $12 billion from $15.4 billion year over year, but rose 6 percent from the second quarter.

There were improvements in other divisions as well. Revenue from the infrastructure and coatings business slumped 22 percent compared with last year but rose 4 percent from the second quarter.

Electronic and specialty materials revenue tumbled 15 percent, more than $1 billion compared with last year. Demand has improved since the first quarter but has not reached levels achieved before the recession.

Commercial construction is rebounding slowly, Liveris said told analysts during a conference call.

Dow, however, went a long way toward its goal of reducing volatility inherent in industrial chemical sales when it acquired specialty chemicals maker Rohm & Haas for $16 billion.

And the company said it achieved cost savings of more than $380 million in the third quarter and $1 billion in the first nine months of the year. After the quarter ended, it also paid off a bridge loan issued for the Rohm & Haas acquisition.

After cutting costs and hopefully reducing some of its volatility, Dow now awaits a U.S. recovery.

Difficult operating conditions going ahead are a given, said Greenwich Consultants LLC analyst Michael Judd.

"I think that we've had this nice bounce in the third quarter," Judd said. "Seasonally the fourth quarter will be weaker and I don't think anybody has any idea what next year is going to look like."

Dow shares rose 96 cents to $26.46.

2009-10-22 16:10:36