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Dow earnings show continued shift away from commodities, but a PE outage's impact on volume drives shares downDow earnings show continued shift away from commodities, but a PE outage's impact on volume drives shares down

Dow Chemical's efforts in 2008 to park its basic plastics business in a joint venture with Kuwait's Petrochemical Industries Company (PIC) may have ultimately failed, but its subsequent $18.8 billion deal to acquire Rohm and Haas that same year, and create a specialty chemicals and advanced materials company, is already paying dividends and reinforcing the company's bid to move out of commodities and into specialty products.

PlasticsToday Staff

August 3, 2010

2 Min Read
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Dow Chemical's efforts in 2008 to park its basic plastics business in a joint venture with Kuwait's Petrochemical Industries Company (PIC) may have ultimately failed, but its subsequent $18.8 billion deal to acquire Rohm and Haas that same year, and create a specialty chemicals and advanced materials company, is already paying dividends and reinforcing the company's bid to move out of commodities and into specialty products. In its second quarter earnings release, Dow announced that nearly three-quarters of its EBITDA (earnings before income taxes, depreciation, and amortization) came from the newly combined Performance businesses, which include the former Rohm and Haas units. The Electronic and Specialty Materials segment of that business saw its EBITDA increase by $125 million versus last year.

For the quarter, Dow reported earnings of $0.50 per share, compared to a reported loss of $0.47 per share in the second quarter of 2009. Sales were up 20% year over year, with prices 19% higher and volume expanding by 7%. Sales rose in all business segments and geographic areas, with particular strength in North America, Europe, and the Middle East and Africa (EMEA). Dow reported that emerging geographies collectively posted volume gains that were nearly double that of the total company. Prices rose the most in North America and EMEA, climbing in those regions by 20% and 21%, respectively.

Dow continues to "deleverage" its balance sheet, reporting that the divestiture of its styrenics business, Styron, generated more than $600 million in free cash flow and reduced net debt by $1.9 billion. The company's operating rate of 86%, excluding planned turnarounds, was up 8% year-over-year and 1% sequentially.

Basic Plastics sales shot up 26% to $3.0 billion. With this business, a volume decline of 7% was offset by a 33% increase in prices. Dow said that global industry demand for polyethylene (PE), particularly in packaging, continued to be strong. The company's Latin American PE sales, however, were impacted by an unplanned outage in Argentina that limited production, thereby contributing to overall volume contraction. North American and European polypropylene (PP) demand grew, while unfavorable propylene costs disadvantaged exports to Asia Pacific. Equity earnings for the segment were $59 million, compared with $35 million in the year-ago period The rise was largely attributed to EQUATE, which benefited from a capacity expansion versus last year.

Sales in Performance Systems, which includes Dow's automotive and wire and cable units, were up 23% over last year to $1.8 billion, with volume rising 13% and 10% higher prices. Performance Products' sales , which includes polyurethane, were up 35% to $2.8 billion, as volumes rose 12% and prices increased by 23%.

The lower volumes, particularly in basic plastics, which where were impacted by unplanned outages, were not taken well by Wall Street. According to MarketWatch, shares at one point on August 3 had fallen 10% to around $25.50. —[email protected]

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