October 4, 2011 / 6:31 PM / 8 years ago

Dow Chemical CEO upbeat despite weak economy

NEW YORK (Reuters) - Dow Chemical Co (DOW.N) Chief Executive Andrew Liveris gave an upbeat outlook for the largest U.S. chemical maker on Tuesday, saying its growth would continue regardless of the global economic situation.

Andrew Liveris, chairman and CEO of the Dow Chemical Company takes part in a panel discussion discussing innovation for building social and economic value at the Clinton Global Initiative in New York, September 22, 2011. REUTERS/Lucas Jackson

The confident talk comes after Dow’s shares have dropped 36 percent so far this year, compared with a 13 percent drop in the S&P 500 index .INX.

Liveris, CEO since 2004, blamed Wall Street for the drop this year, saying investors were trying to find the stock’s trough, or bottom, to buy-in before a potential rebound.

“The company we were at $42 per share, we’re still that same company,” Liveris said in an interview at the company’s investor day in New York. “Wall Street sees all the things they see when they look at us, but they don’t look at us. They look at the macroeconomic situation.”

The stock was up 0.3 percent in early afternoon trading.

The Michigan-based company will continue to use its cash to slash its $18.51 billion debt load and is “seriously looking at” raising its annual dividend of $1.00, Liveris said.

In the past three years, Liveris has changed Dow’s focus from low-margin commodity chemicals into high-margin specialty materials used to make food packaging, televisions, nutritional supplements, solar panels and other products that consumers are willing to pay a premium for.

Dow’s solar shingle product, which is designed to be installed on roofs like ordinary shingles and can generate electricity from sunlight, will officially hit the market this month as part of a partnership with homebuilder DR Horton Inc (DHI.N), he said.

Dow expects the product to generate $1 billion in annual revenue by 2015.

The new focus, as well as products like the solar shingle, should help Dow earn $10 billion in earnings before income taxes, depreciation and amortization (EBITDA) in the “near term,” Liveris said. That would compare with EBITDA of $7.5 billion in 2010.

The “near-term” forecast is for Dow’s “run-rate,” a term that refers to a company’s performance in the previous 12 calendar months.

IMPROVING RESULTS

“‘Near term’ means that in the next couple of years we’ll hit that run-rate,” Liveris said. “What you and others have to figure out is what year that’s going to be.”

U.S. Securities and Exchange Commission rules preclude the company from giving a specific timeframe for “near term,” Liveris said. But he did say that $8 billion in EBITDA would equal annual EPS of $2.50.

Using that metric, $10 billion in EBITDA would equate roughly to $3.13 per share in annual earnings for the “near term.” By comparison, analysts expect 2012 earnings of $3.26 per share, according to Thomson Reuters I/B/E/S.

“We will get to our targets no matter what the world throws at us,” Liveris said.

Dow’s results have improved since the last recession in 2008. In the past 12 months, it has beaten earnings estimates each quarter, boosted its dividend, announced new joint ventures in Brazil and Saudi Arabia, and slashed debt by more than $4 billion.

ETHYLENE ADVANTAGE

Dow, along with other North American-based chemical companies, has gotten a big boost over the past few years from cheap shale natural gas, which is used to make ethylene, the most important chemical building block.

Liveris called shale gas a “game-changer” for the industry and said he expected it to fuel growth “for decades to come.”

He has some competition for access to the gas, with Shell (RDSa.L) moving forward on plans to build its own ethylene plant in the Appalachia region of the eastern United States.

Dow signed its own supply agreement with pipeline operator Range Resources Corp (RRC.N) earlier this year for access to natural gas.

Dow plans to open its own ethylene plant on the U.S. Gulf Coast by 2017 and expand its production of the chemical at other sites. Dow has not yet decided where to build the plant.

The trick for Dow will be to use that ethylene in specialty products that will help it beat downturns in the commodity chemical cycle, which ebbs and flows roughly every five years and tends to sharply affect stock prices.

“We are at the epicenter of this trend,” Liveris said.

Prices for ethylene have dropped slightly in the past few weeks, cutting into strong margins and fraying investor nerves. Still, prices remain high at about 57 cents per pound, according to industry newsletter PetroChem Wire.

Liveris described the new Gulf Coast plants, as well as a plant under construction in Saudi Arabia, as two growth “anchors” for the company.

Also on Tuesday, Dow announced plans to open offices in Algeria and Ghana as part of a broader push into Africa. It currently has offices in Egypt, South Africa and Kenya.

Dow shares were at $21.58 in afternoon trading, far below the 52-week high of $42.23.

Reporting by Ernest Scheyder; Editing by Ted Kerr

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