April 23, 2014 / 11:15 AM / 5 years ago

Dow Chemical expects margin growth after cost control pays

(Reuters) - Dow Chemical Co (DOW.N) said it expected margins to grow in almost all of its businesses in the near term, after tight cost control helped it lift margins in the first quarter.

Dow Chemical Chief Executive Andrew Liveris speaks during the CERAWEEK energy conference in Houston March 8, 2012. REUTERS/Richard Carson

The No. 1 U.S. chemical maker by sales reported a higher-than-expected profit, sending its shares up as much as 3.5 percent on Wednesday.

The one unit not expected to boost margins is the feedstocks and energy division, which Chief Executive Andrew Liveris said may be restructured after the company completes a planned sale of its chlorine and derivatives assets.

The feedstocks and energy unit is among petrochemical businesses hedge fund titan Daniel Loeb is urging Dow to spin off.

Dow has put up its epoxy business and some chlorine and derivatives assets for sale as part of a broad plan to raise as much as $6 billion from non-core asset sales by the end of 2015.

The company has resisted the demand by Loeb’s Third Point LLC, saying repeatedly that it wants to use its commoditized raw materials businesses to keep costs down in its high-growth specialty chemicals businesses.

“(The company’s divestment plan) is very shareholder friendly, but when you throw on top of that our share buyback and our dividend increase, that is clearly shareholder friendly,” Liveris told Reuters.

“Every shareholder including Loeb has to like those actions.”

Dow reaffirmed its plans to complete its $4.5 billion share buyback program by year-end.

Dow, which has narrowed its focus to electronics, packaging and agriculture, is looking to shed non-core businesses in its functional materials and performance materials units - two of the slowest-growing units in the latest quarter.

The company’s share were up more than 1 percent at $49.48 in afternoon trading on the New York Stock Exchange.


Dow said it expected margins to rise by as much as 4 percent in its agriculture sciences, performance materials and performance plastics businesses in the near term.

The company said margins expanded across most of its businesses in the first quarter even after an increase of more than $300 million in the cost of feedstock and energy.

“A lot of the (cost-saving) actions that were taken over the last couple of years will be benefiting earnings this year and next,” said John Roberts, who leads U.S. chemical coverage at UBS Investment Research.

Roberts said he thought most of the company’s biggest cost-cutting steps were behind it. Dow Chemical cut 5 percent of its workforce and shuttered 20 plants in late 2012.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in Dow’s feedstocks and energy business fell 28 percent.

Adjusted EBITDA in Dow’s coatings and infrastructure solutions business rose 20 percent in the quarter, while performance plastics rose 5 percent.

The performance plastics unit, Dow’s biggest, reported its seventh straight quarter of margin expansion as higher prices helped the company offset higher costs for raw materials such as propane and ethane.

The company’s first-quarter net income of 79 cents per share beat average analyst estimate of 71 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 0.5 percent to $14.46 billion, missing the average analyst estimate of $14.72 billion.

Reporting by Swetha Gopinath and Kanika Sikka in Bangalore; Editing by Don Sebastian and Ted Kerr

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