Dow posts higher profit, notes investor criticism

By Frank Esposito
Senior Staff Reporter

Published: January 29, 2014 2:43 pm ET
Updated: January 31, 2014 12:43 pm ET

Image By: Dow Chemical Co. Andrew Liveris

Related to this story

Topics Materials, Materials Suppliers
Companies & Associations Dow Chemical Co.

Officials at Dow Chemical Co. addressed recent investor criticism while announcing that the firm showed major profit gains during 2013.

For full-year 2013, Dow’s sales were up less than 1 percent to just under $57.1 billion, but profit at the Midland, Mich.-based firm increased more than four times to $4.8 billion. Some of this improvement came from Dow winning a major cash settlement of almost $2.5 billion from Petrochemical Industries Co. of Kuwait over a failed 2008 business deal.

In a Jan. 29 conference call, Dow Chairman and CEO Andrew Liveris said that Dow “has re-positioned itself to address uncertainties and the new reality of our world.”

“Our company is strong,” he added, pointing out that Dow exceeded its $500 million cost reduction target for 2013.

On Jan. 21, Dow investor Third Point LLC of New York criticized the firm for what it called “a poor operational track record” and “a history of under-delivering relative to management’s guidance and expectations.” Third Point also suggested that Dow’s petrochemical business – including its major polyethylene assets – be spun off into a separate public company.

Liveris addressed this criticism – without mentioning Third Point by name – during a question-and-answer session at the end of the conference call.

“We look at value chains from ethane to ethylene to polyethylene to high-end packaging – the complete value chain,” he said. “It’s almost impossible to think of Dow as a petrochemicals company anymore. We’ve divested $10 billion worth of those businesses.”

“No one else can imitate the Dow business. There’s only one competitor in similar businesses, and they value their business as much as we do.”

Liveris added that he “agreed with the investor that there is an upside.”

Included in that petrochemicals sell-off was the October sale of Dow’s polypropylene licensing and catalyst business to W.R. Grace & Co. for $500 million.

Among separate business units, Dow’s Performance Plastics unit – including PE - saw sales grow 1 percent to more than $14.6 billion in 2013. The unit’s pretax profit, however, surged almost 51 percent to more than $4.5 billion.

Dow’s Performance Materials unit – including PVC feedstocks and epoxy resins – saw its 2013 sales fall more than 1 percent to $13.4 billion, even as pretax profit grew almost 4 percent to more than $1.4 billion.

In early December, Dow announced plans to spin off or sell most of its chlorine value chain businesses – which are part of Performance Materials – including PVC feedstocks and epoxy. Those businesses have annual sales of about $5 billion.

Liveris said that interest in the chlorine-related business “has been terrific.”

“We’re marching down the path and would like to complete (the spinoff or sale) early in the 12-24 month period,” he added.

Liveris – a 38-year Dow veteran who has served as the firm’s CEO since 2004 - also commented on the transformation that Dow has made in the last decade.

“We’ve transitioned to being a producer of agricultural and high-end plastic products, in order to re-shape and position our company for long-term earnings growth,” he said. “We’ve reduced our commodities footprint, not because these are bad businesses, but because their returns are challenged by global competition, primarily from state-owned entities.”

Liveris explained that Dow has re-shaped its portfolio by exiting such businesses as styrenics, PP and polycarbonate and by “lining up with technology-added solutions.” In packaging, Dow has “collaborated throughout the value chain to make more functional and sustainable packaging,” he said.

This transformation “led us to exit a (chlorine) value chain that’s been part of Dow’s portfolio since the company was founded more than 100 years ago,” Liveris added. The fact that Dow is carving out chlorine “shows that anything is on the table,” he said.

At the same time, Dow is embarking on a massive expansion project on the U.S. Gulf Coast in order to take advantage of newfound supplies of natural gas throughout North America. The firm plans to spend about $4 billion to add more than 3 billion pounds of PE and related plastics – as well as ethylene and propylene feedstocks – with most of that work focused at Dow’s already-massive complex in Freeport, Texas. The first new capacity from this expansion is set to come online in 2017.

On Wall Street, Dow’s per-share stock price was near $34 in early 2013 but stood at $45.40 in early trading Jan. 30 for an increase of more than 30 percent.

Moody’s Investor Service – a well-known credit rating firm – weighed in on the Dow/Third Point situation in a Jan. 27 news release, saying that splitting Dow “would be a credit negative.”

“We do not believe that Dow will implement this proposal, and instead will accelerate its planned cost reductions and divestitures,” Moody’s officials said. They added that the two Dow companies created by the Third Point proposal “individually would likely exhibit greater volatility in earnings and cash flow than the current Dow.”

The two proposed firms “would likely be unable to support Dow’s current credit profile and remain at the Baa2 rating,” Moody’s officials explained. “We believe that Dow’s vertical integration is a credit positive and leads to greater overall stability in earnings and cash flow.”


Comments

Dow posts higher profit, notes investor criticism

By Frank Esposito
Senior Staff Reporter

Published: January 29, 2014 2:43 pm ET
Updated: January 31, 2014 12:43 pm ET

Post Your Comments


Back to story


More stories

Image

Celanese buys conductive polymer supplier

October 21, 2014 4:31 pm ET

Materials firm Celanese Corp. has acquired most of the assets of conductive polymers maker Cool Polymers Inc. for an undisclosed price.    More

Image

BASF targets coffee and automotive connoisseurs with new resin grades

October 21, 2014 2:07 pm ET

BASF SE is using polybutylene terephthalate (PBT), which is normally used to manufacture high-end electronics, in a food consumer packaging product.    More

Materials firm realigns business divisions

October 20, 2014 1:23 pm ET

Trinseo S.A., formerly known as Styron L.L.C., is realigning its business divisions, creating two new business groups — Performance Materials...    More

Image

Corbion Purac collaboration taking bioplastics into even more uses

October 17, 2014 6:00 am ET

Corbion Purac NV's collaboration with Taiwan-headquartered compounder Supla Co. Ltd. and Taiwan electronics producer Kuender & Co. is paying...    More

Image

Momentive gearing up for some timely LSR sales

October 17, 2014 10:58 am ET

Momentive Performance Materials Inc. has plenty of time for customers at Fakuma — thanks to colorful new watchbands made with the firm's fiber-r...    More

Market Reports

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Plastics in Mexico - State of the Industry Report

This report analyzes the $20 million dollar plastics industry in Mexico including sales of machinery & equipment, resins and finished products.

Our analysts provide insight on business trends, foreign investment, top end markets and plastics processing activity. The report also provides important data on exports, production, employment and value of plastics products manufactured.

Learn more

Plastics Caps & Closures Market Report

The annual recap of top trends and future outlook for the plastics caps & closures market features interviews with industry thought leaders and Bill Wood’s economic forecast of trends in growing end markets. You will also gain insight on trends in caps design, materials, machinery, molds & tooling and reviews of mergers & acquisitions.

Learn more

Upcoming Plastics News Events

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events