Dow Chemical and ExxonMobil report 2Q earnings

The company reported sales of $14.5 billion, down 10%, or 6% on an adjusted sales basis.

The decline was led by Europe, which decreased 10%, driven by adverse currency conditions totaling more than $400 million, or 8%.

"The new reality is that this world is not in a normal growth mode," Andrew N. Liveris, Dow's chairman and CEO, told analysts on a conference call. "And it does not appear that we will see this for at least 12 to 24 months."

Sales in performance materials, such as polyurethane and epoxys, were $3.4 billion, down 11% on an adjusted sales basis as volume declined 5% and price declined 6%.

Sales in performance plastics were $3.7 billion, down 6% on an adjusted sales basis, as volume rose 3% but price declined 9% versus the year-ago period.

"Sustained uncertainty in the world economy continues to present a challenging operating environment, and this quarter was no exception," Liveris said.  "Weak demand due to a slowdown in global growth drove declining prices. This, coupled with an unusually high turnaround season for Dow and a large currency effect, pressured margins in the quarter."

ExxonMobil (NYSE: XOM), the world's largest publicly traded oil company, also fell short of expectations, according to reports. Second quarter earnings of $15.9 billion included a net gain of $7.5 billion associated with divestments and tax-related items. Excluding these items, second quarter earnings were $8.4 billion.

Oil and gas output fell 5.6% to 4.15 million barrels oil equivalent per day during the quarter.

Chemical earnings of $2.15 million were $687 million lower than 2011. The gain associated with the Japan restructuring increased earnings by $630 million, while weaker margins decreased earnings by $750 million. Lower volumes decreased earnings by $70 million. All other items, including unfavorable foreign exchange effects, higher operating expenses, and tax items, decreased earnings by $500 million.

"We remain concerned by the company's weak oil and gas production. Due to its integrated functions, Exxon is also susceptible to the downside risk from any weakness in the global economy," stated Zacks, an investment research firm. "However, we believe that XOM will retain its leverage to higher oil prices going forward given its significant share in the upstream business."

Moving forward
Dow closed two vinyl chloride monomer (VCM) production units in 2011, according to Zacks. The company shut down a production unit in Oyster Creek, TX, in the first quarter of 2011. The closure of a second VCM unit, located in Plaquemine, LA, was completed in third-quarter 2011.

This is a continuation of the decisive actions taken by Dow to right size the core chemicals manufacturing footprint and shift basic feed stocks toward performance derivative businesses, Zacks stated. The company recently announced the closure of manufacturing plants in Europe, North America and Latin America. The company will also lay off 900 workers. Dow anticipates savings of roughly $250 million annually from these actions.

Dow's performance has been dampened by global industry overcapacity. Although demand for ethylene, PE resins and chlorine are showing some improvement, it remains below historical levels, Zacks stated.

Concerns about the economic conditions have not appeared to have an impact on Dow's upcoming expansion plans. Dow plans to build a new ethylene production plant at Dow Texas Operations in Freeport, TX, which is part of the company's $4 billion investment to grow its overall ethylene and propylene production capabilities in the U.S. Gulf Coast region. This marks the construction of its first U.S. ethylene plant since 1995.

To help strengthen its downstream business, Dow and Saudi Arabian Oil Co. are spending about $20 billion on factories that will include lines for polyurethane, elastomers, linear low-density polyethylene and low-density polyethylene. The factories will be built in the Jubail Industrial City within Saudi Arabia.

ExxonMobil and Rosneft signed agreements to jointly develop tight oil reserves in Western Siberia and establish a joint Arctic Research Center for Offshore Developments.

The company has permit applications to progress plans for a petrochemical expansion on the U.S. Gulf Coast, in anticipation of a 2016 start-up. The potential project would include a new ethane cracker and premium product facilities at ExxonMobil's integrated Baytown complex in Texas.

ExxonMobil and joint venture partner Saudi Arabia Basic Industries Corp. will proceed with construction of a specialty elastomers facility. The 400,000 tonnes/yr facility will be integrated with the existing Al Jubail complex in Saudi Arabia, and completion is anticipated in 2015.