Dow Chemical Co. is going on the offensive, despite facing a number of challenges and just wrapping up a year in which overall company profit fell 80 percent.
``We've never shied away from the truth in good times and bad, and we're not going to start now,'' Chairman and Chief Executive Officer Andrew Liveris said Feb. 3 during a conference call with stock analysts.
In the hour-long call, Liveris addressed issues that have rocked Dow in recent months including the sudden breakup of a planned commodity plastics joint venture with Petrochemical Industries Co. and the delay of Dow's acquisition of specialty chemicals maker Rohm and Haas Co.
In the call, Liveris did not address allegations that Midland, Mich.-based Dow bribed Kuwaiti officials in an attempt to complete the joint venture with Safat, Kuwait-based PIC. Dow has denied the charges.
The year ended for Dow with a fourth-quarter loss of $1.5 billion. The firm's fourth-quarter sales of basic plastics including polyethylene and polypropylene plummeted 38 percent to less than $2.2 billion, compared with the same quarter in 2007. The unit had a quarterly pretax loss of $315 million after showing a pretax profit of almost $400 million the year before.
Dow's performance plastics unit including polyurethane and epoxy saw fourth-quarter sales plunge 20 percent to $3.2 billion. The business rang up a quarterly pretax loss of $479 million after earning almost $160 million pretax in 2007.
For all of 2008, Dow's plastics units had combined sales of almost $29 billion, representing just under half of the firm's total. Their combined 2008 pretax profit of almost $1.3 billion was 63 percent less than the total for 2007.
Companywide, Dow's 2008 sales grew almost 8 percent to $57.5 billion, but profit tumbled 80 percent to $579 million.
``Our financial results are very disappointing, but management intervention has generated strong cash flow in a difficult environment,'' Liveris said. ``The impact of the economic crisis was inescapable. The fourth quarter was the worst quarter in more than two decades. ... We've taken aggressive steps to match production with demand.''
Those steps have included the permanent closing of 20 plants and temporary idling of 180 more, along with the elimination of 5,000 full-time jobs and 6,000 contractor positions.
Liveris described PIC's Dec. 28 cancellation of the joint venture which would have included most of Dow's commodity plastics output as ``a significant setback to our long-term strategy, but a temporary one.''
Dow is meeting with several potential new partners for the venture, including financial firms and other chemical makers.
Finding a new partner ``is the right strategy, and we remain a strong company,'' Liveris said. ``But we're also realists, and we know this is a major setback and that we have to get our house in order.'' Dow is seeking damages in excess of $2.5 billion from PIC.
``We weren't just surprised [by the pullout], we were extremely disappointed by it,'' Liveris said. ``We had a signed, binding agreement and had renegotiated to a lower price because of changes in the market.''
PIC's ``stunning failure to adhere to the rule of law was unprecedented,'' Liveris said.
Second deal on hold
Dow has postponed its $15.4 billion, $78-per-share purchase of Rohm and Haas; in response. Rohm and Haas has a March 9 hearing in Delaware Chancery Court in Wilmington, Del.
Dow filed its legal response Feb. 3, arguing that the transaction shouldn't be forced through.
Liveris said the Rohm and Haas deal ``is consistent with [Dow's] long-term strategy, but it's our job to protect the interests of shareholders. Proceeding at this time would do irreparable harm and jeopardize the future of both companies. We're in the midst of a unique economic meltdown.''
He said Dow's actions in the deal with Philadelphia-based Rohm and Haas differ from PIC's actions in the Dow-PIC deal.
``PIC had no intention to close the [deal], while [Dow] is open to further discussion with Rohm and Haas,'' he said.
He said the Kuwaitis failed to accept responsibility for their actions in the PIC deal. ``With Rohm and Haas, Dow acknowledges its accountability. We want to see if together we can find a workable solution outside of litigation,'' Liveris said.
PE prospects hopeful
Liveris was relatively optimistic about prospects for Dow's market-leading PE business.
``There's a good possibility for an uptick in polyethylene as well, because a big chunk of it is sold into packaging,'' he said. ``Polyethylene has had steady annual growth. It's never had back-to-back down years.''
Liveris added that Dow's PE facilities are unlikely to appear on the firm's list of permanent shutdowns.
``We've been here before on polyethylene,'' he said. ``We've seen demand-led troughs go this vicious.''
Moves involving Dow's plants and personnel should produce run-rate savings of $500 million by the end of 2009 and $750 million by the end of 2010, Liveris said. ``We're prepared for the recession to last through 2009 and for [current] demand levels to persist for several quarters and possibly beyond,'' he said.
``When the economy turns, the commercial world will be clamoring for sustainable solutions, and that's what we will provide.''
Others' results mixed
Some other publicly held plastics and chemicals firms fared no better than Dow in the bleak fourth quarter.
Pittsburgh-based Nova Chemicals Corp. saw its olefins and polyolefins unit including PE report a quarterly operating loss of $264 million. Its Ineos Nova joint venture including PS had an operating loss of $84 million in the quarter.
For the year, Nova lost $48 million even though sales were up 10 percent to $7.4 billion and its PE sales volume in pounds ticked up 2 percent to more than 3.4 billion. Nova reported PE sales of 345 million pounds in December, marking its best-ever December sales and second-highest PE sales month in the firm's 14 years as a PE manufacturer.
Nova is struggling with cash liquidity issues, leading to its debt being downgraded by ratings agencies. These moves have sent the firm's stock plummeting from $3.50 per share on Jan. 28 to about $1.70 in late trading Feb. 5. The price had been at $25 in mid-September.
At DuPont Co. of Wilmington, Del., the performance materials unit including nylon and other engineering resins had a pretax loss of $223 million in the fourth quarter as sales fell 30 percent to $1.2 billion.
For full-year 2008, performance materials' sales fell 3 percent to about $6.4 billion as pretax profit shrank almost 80 percent to $128 million.
The business ranked third in 2008 sales among DuPont's five units, with a share of almost 21 percent, but it ranked last in pretax profit, bringing in less than 5 percent of the firm's total.
Results were a little less extreme at Eastman Chemical Co. in Kingsport, Tenn. The firm's performance polymers unit including PET bottle resin had a fourth-quarter operating loss of $52 million, while Eastman's specialty plastics unit including Tritan-brand copolyester had an operating loss of $1 million.
Performance polymers' sales for the quarter were down 45 percent, while specialty plastics' sales slid 15 percent.
For Dallas-based Celanese Corp., its advanced engineered materials unit mostly composed of its Ticona engineering resins business had a fourth-quarter operating loss of $48 million as sales fell 23 percent.
For the year, the unit including Ticona's world-leading acetal resin business saw its operating profit tumble 76 percent even as sales inched up 3 percent to almost $1.1 billion.
Based on sales, advanced engineered materials ranked last among Celanese's four operating units in 2008, generating about 16 percent of the firm's total.