NEW YORK (Reuters) - Dow Chemical (DOW.N) posted a lower third-quarter operating profit on Thursday, citing a drop in sales volumes and shutdowns from hurricanes, but price increases and a strong agricultural business helped earnings beat expectations, sending its shares up more than 8 percent.
However, the largest U.S. chemical maker cautioned that the global economy was likely to suffer through a recession for most of 2009 and that the pace of growth in emerging economies was beginning to falter.
“If you take a look at emerging economies as a whole, they have been slowing down,” Chief Executive Andrew Liveris said in an interview with Reuters. “I would also tell you that China is starting to slow down and that’s the engine of Asia.”
Midland, Michigan-based Dow will face a very challenging environment in 2009, Liveris said. It already feels as if the U.S. economy is in a recession, he added, and any sectors outside of health care and food are feeling the slowdown.
“We did say we would earn more than $3 (per share) in an industry trough,” Liveris said. “But I also did say, if there was a recession, all bets are off. Frankly, we’re going to re-look at that number in the context of a very weak ‘09.”
Analysts were particularly concerned by the sharp drop in quarterly shipment volumes the chemical maker reported.
“The volume declines are definitely sharper than I had expected, even excluding all the hurricane-related impact,” said Morningstar analyst Ben Johnson.
“Coming out and saying a global recession is likely through most of 2009, is a pretty bold and pretty grim statement,” he added.
Excluding hurricane- and acquisition-related charges, Dow posted earnings of 60 cents a share, down from 84 cents a year earlier, but above Wall Street’s forecast of 56 cents.
Dow, which earlier this year raised prices for all its products because of surging energy costs, was forced to shut down a large part of its North American operations in September because of damage from hurricanes Ike and Gustav.
Those storms, coupled with sinking global demand and the sale of some assets, reduced quarterly sales volumes by 9 percent from a year earlier, the company said in a statement.
Like other chemical makers, Dow has suffered because of the jump in oil and natural gas prices, which peaked in early July. Even with a 50 percent drop in energy costs over the last three months, Dow’s energy and raw material costs rose $2.6 billion from year-earlier levels.
Net income rose to $428 million, or 46 cents a share, from $402 million, or 42 cents a share.
Quarterly revenue rose 13 percent to $15.4 billion, driven primarily by price increases.
Dow’s shares at current levels offer a dividend yield of 7 percent and the company has no plans to lower the dividend, which has never been halted or cut since 1912.
“The dividend is safe. This CEO is never going to cut it. I’m not going to be the first,” said Liveris.
Chief Financial Officer Geoffery Merszei reiterated that the company has sufficient liquidity and financial flexibility to meet all business obligations.
“We have committed credit lines of approximately $5 billion, of which half remains unused. In addition, we have other sources of funding available to us throughout the world,” he said.
Shares of Dow, which had fallen sharply over the last three months, rose $1.89, or 8.6 percent, to $24.00 in afternoon New York Stock Exchange trading.
Additional reporting by Matt Daily; Editing by Lisa Von Ahn and Matthew Lewis