Bus ADMN 452
DOW Chemical Co.
Dow Chemical's conversion into a smaller and more profitable company is beginning to work, said Chief Executive Andrew Liveris on Wednesday. Claiming $1.3B in asset sales so far this year and a 43% increase to third quarter profit. Dow has expectations to sell lower margin business lines to raise over a total of over $4B by the end of 2015. Dow also posted a profit of $852 million, or 71 cents a share, for the third quarter, which grew from 49 cents a share last year. With the exclusion of only one use products, earnings were 72 cents a share, up from 50 cents in the prior-year period. Revenue also rose to over $14B. Analysts surveyed had projected 68 cents a share in earnings and $14 billion in revenue, but expanding sales across the board helped Dow beat market expectations.
The company predicted it could maintain strong results, but also reminded themselves and its shareholders that the global economic picture is a challenging goal. Falling oil prices have generated the investors’ concerns about Dow and other petrochemical manufacturers in the United States.
Profit margins are strengthened in North America by cheap natural gas and other fuels that Dow and its partners use to make plastics and consumer goods, while their foreign competitors tend to run plants on the more costly oil based manufacturing. Now that oil prices are becoming lower, some analysts have wondered if whether Dow may be losing its competitive edge. The company's shares are up more than 17% on the year, but have fallen nearly 8% in the last month.
Mr. Liveris said that competitive advantage isn't being lost within DOW Chemical. Dow's margins may be tightened in the near term, but he said this effect will only be temporary. Dow expects that within the next year, oil prices will begin to get back toward $100 a barrel, up from the current $80 a barrel. For the time being, lower oil prices should help spark global economies and the demand for Dow products." At the end of the day, this is in the good basket, not the bad basket," he said.
He is a vocal critic of plans to export American oil and gas and has argued that unencumbered shipments abroad could squash a resurgence in U.S. manufacturing. Less expensive oil could also quiet down calls for U.S. exports of oil and natural gas, making it less profitable to ship overseas. Activist Daniel Loeb has put a lot of pressure on the company. Loeb, who runs hedge fund Third Point, wants Dow chemical to cut off its petrochemicals business from its specialty-chemicals business. Dow has resisted this move, saying it has an integrated approach that adds value and allows the company to hedge against volatile markets. Third Point didn't immediately respond to a request for comment.
As investors keep in mind that oil is the silver lining in the growth, and decline for that…