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Dow Chemical Tops Profit Estimates with Corning Deal Boost

Jan. 26, 2017
“We are seeing early signs of positive economic momentum, with the United States in expansionary mode, driven by the ongoing strength of the consumer and the tailwind of a new incoming administration promising structural reforms,” CEO Andrew Liveris said.

Dow Chemical Co., (IW 500/23) the chemical maker trying to overcome antitrust concerns about its historic merger with DuPont Co., posted fourth-quarter profit that beat analysts’ estimates as a silicones acquisition boosted results from specialty products.

Adjusted earnings rose to 99 cents a share, exceeding the 88-cent average of estimates compiled by Bloomberg.

Sales climbed 14% to $13 billion, Midland, Mich. Dow said on January 26. That compared with the $12.4 billion that analysts anticipated.

Dow paid Corning Inc. $4.8 billion to gain complete control of their 72-year-old silicones venture in June, boosting results in the consumer and infrastructure solutions businesses. That helped make up for lower earnings from plastics, Dow’s largest business. Operating profit surged 83% in the consumer solutions unit, which serves automotive, electronics, food, pharmaceutical and personal care markets.

“Consumer-focused businesses have been really good for Dow, offsetting soft industrial end-markets,” said James Sheehan, an analyst at Suntrust Robinson Humphrey Inc.

Excluding acquisitions, total sales volume rose 3%, led by a 7% gain in consumer solutions, Dow said. Prices on average were little changed.

‘Early Signs’

“We are seeing early signs of positive economic momentum, with the United States in expansionary mode, driven by the ongoing strength of the consumer and the tailwind of a new incoming administration promising structural reforms,” CEO Andrew Liveris said.

Liveris this week met with President Donald Trump at the White House along with other company executives to discuss ways to boost U.S. manufacturing employment. Liveris previously advised President Barack Obama.

Europe’s economy is continuing to make a gradual recovery while Asia’s middle class is driving demand in that region, the CEO said. Dow also is seeing improvement in Latin America, including in Brazil, he said.

Liveris is eliminating 2,500 jobs in a cost-saving push related to the Dow Corning acquisition. He’s shedding commodity assets such as chlorine while adding higher-value products such as silicone, used in tires and electronics. Construction of a new ethylene plant in Texas is more than 90% finished and all 26 units at the Sadara joint venture in Saudi Arabia are complete, Dow said.

Buffett’s Holding

Dow in December eliminated $340 million of annual preferred dividend payments by converting shares held by Warren Buffett’s Berkshire Hathaway Inc. and the Kuwait Investment Authority into common stock. That also had the effect of diluting the company’s per-share earnings.

Based on generally accepted accounting principles, Dow posted a fourth-quarter net loss of 3 cents a share because of a $1.1 billion expense related to changes in asbestos liability accounting and $295 million for the cleanup of environmental sites.

The asbestos charge stems from a decision to accrue projected legal fees and anticipated settlement costs through 2049, CFO Howard Ungerleider said. There is no change to the company’s asbestos liability, he said. The environmental expense reflects remediation agreements with regulators for polluted, inactive Union Carbide and Rohm & Haas sites.

Merger Concerns

Dow and DuPont announced their merger of equals in December 2015. This week they won a 10-day extension to satisfy European Union concerns that joining together the biggest U.S. chemical makers would hurt innovation, particularly the development of crop pesticides. The deal also needs approvals in the U.S., China and Brazil. DuPont CEO Ed Breen on January 24 said the companies can remedy antitrust worries, although the extended EU negotiations mean they may not combine until mid-year, rather than in the first quarter.

The merger partners plan to cut $3 billion in costs from DowDuPont, including $300 million from research and development spending. Reductions in R&D won’t involve scientists who develop new products, Breen said this week. Eighteen months after closing, the new DowDuPont Inc. is to split into three publicly traded entities, including an agriculture company that would be larger than current market leaders Monsanto Co. and Syngenta AG, which have agreed to separate mergers.

DuPont on January 24 reported fourth-quarter earnings that exceeded analysts’ projections amid cost cuts and increased sales of plastic auto parts and food ingredients.

By Jack Kaskey

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