* CEO says wants to shed low-cost commodity businesses
* 2nd-qtr revenue at agricultural sciences unit grows 10
* Adjusted profit $0.64/share vs est.$0.63/share
* Shares rise 1.5 percent
By Swetha Gopinath and Garima Goel
July 25 Dow Chemical Co will consider
selling its paint, construction and chlorine businesses as it
joins industry rivals in shedding units vulnerable to commodity
price swings, its chief executive said.
Dow, the largest U.S. chemical maker by sales, reported a
better-than-expected quarterly profit on Thursday due to strong
margins in its plastics business and higher sales of pesticides
to farmers. Its shares rose 1.5 percent in morning trading.
Like competitor DuPont, the company is pushing hard
into the agricultural sector, where sales have been booming on
year-round demand for seeds and pesticides for the crops needed
to feed an expanding global population.
DuPont said on Tuesday that it planned to exit its titanium
paint pigments business to focus on its agricultural unit, where
higher sales helped to boost quarterly profit.
Dow Chemical has already divested non-core businesses worth
about $8 billion in revenue since 2009, and plans this year to
close the previously announced sale of its polypropylene
licensing and catalyst business and its plastics additives unit.
"One-third of our business is in low-cost commodity,
cyclical-type business, where my competition is state-owned
enterprises," Dow Chemical Chief Executive Andrew Liveris said
in an interview with CNBC on Thursday.
"My competition is racing to commoditize my products. That
means I have to keep working them out of the portfolio and keep
moving to areas of high-margin, high-technology."
On a post-earnings conference call with analysts, Liveris
identified the company's Epoxy, or industrial paint, business as
a candidate for divestment, as well its European building and
construction and commodity chlorine derivatives units.
"Here, we see the need for more dramatic interventions," he
said. "These businesses are in the fix/take-action mode, which
includes exploring all possibilities - including joint venturing
or divesting them."
Dow Chemical spokeswoman Rebecca Bentley said the three
businesses combined contributed $6 billion in annual revenue.
Some analysts, however, urged caution.
"Dow has to be careful with how much of the commodity
business it offloads, given that is what is generating their
margin upside," said Stephen Hoedt, a senior equity research
analyst with Key Private Bank.
FARMS GROWING FAST
Of Dow Chemical's six operating units, growth was fastest in
the agricultural business that makes seeds, oils and chemicals
to protect crops. Sales jumped 10 percent in the second quarter.
A steady climb in U.S. farm income has increased demand for
biotech seeds and pesticides. Dow Chemical's agriculture
sciences business, which contributed 13 percent of revenue in
the quarter, also gained from strong demand in Latin America.
The company's performance plastics unit, which makes
products for toy manufacturers, builders and carmakers, remained
its largest business, accounting for nearly a quarter of total
sales. Margins grew for a sixth straight quarter.
Dow Chemical said it was well-positioned to deliver higher
earnings in the second half of the year.
The company expects its earnings before interest, taxes,
depreciation and amortization to grow by $500 million this year,
Chief Financial Officer William Weideman said on the call.
Dow Chemical reported EBITDA of $5.6 billion, or $7.5
billion on an adjusted basis, in 2012.
Weideman said the performance plastics business was expected
to grow through 2013. Margins for U.S. chemical companies have
improved vastly due to cheap, shale-derived natural gas, used to
produce ethylene, a building block for plastics.
Dow Chemical's net income rose 72 percent to $2.34 billion,
or $1.87 per share, in the second quarter, helped by the $2.2
billion received in damages from Kuwait's state chemicals
company for pulling out of the K-Dow petrochemical venture in
Excluding the arbitration award and other one-time items,
the company earned 64 cents per share.
Dow Chemical's shares were trading around $35 just after
midday on the New York Stock Exchange.