Earnings Preview: Cost cuts may help Dow Chemical

Dow Chemical should benefit in 3Q from cost-cutting measures, better demand for some products

• By Sandy Shore, AP Business Writer
• On 3:13 pm EDT, Wednesday October 21, 2009

DENVER (AP) -- Dow Chemical Co., the nation's largest chemical maker, is scheduled to report third-quarter earnings Thursday before the market opens. Here is a summary of company news and analysts' thoughts from that period:

OVERVIEW: Dow manufactures basic products used in a variety of consumer items from shopping bags to toys and automobiles. It has sought to shift the focus of its business away from commodity chemicals, made from fossil fuels, to specialty chemicals, used in products like cosmetics and food additives.

During the third quarter, the Midland, Mich.-based company took steps to raise cash to pay off debt and meet a federal government mandate to divest some assets it acquired as part of a $16.5 billion buyout of Rohm & Haas Co. earlier this year.

Dow sold its interest in a Netherlands-based crude oil refinery to Paris-based Total SA for about $800 million, and a Texas acrylic acid and esters plant and a specialty latex business to Arkema for $50 million.

It also announced plans to sell a hollow sphere plastic pigment product line to specialty chemicals maker Omnova Solutions Inc. and close two production units at a Texas plant by the end of the year.

In August, Dow Chemical priced a $2.75 billion public debt offering. It said it would use the proceeds to help repay a bridge loan it used to help finance the Rohm & Haas acquisition.

Early this month, Dow Chemical added to that by completing the sale of its interest in Morton International Inc. to Germany-based K+S Aktiengesellschaft for $1.68 billion. About $1 billion of that was to go toward the bridge loan.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters forecast, on average, net income of 10 cents per share on revenue of $11.79 billion.

ANALYST TAKE: Dow Chemical is expected to show benefits from cost-cutting measures taken since the recession took hold and improved product demand. Analysts believe the results will be better than the second quarter but down on a year-over-year basis.

Dow has cut 10,000 jobs since last fall and plans to close three Louisiana plants as well as the Texas production units.

"Dow Chemical should have an OK quarter. Still a global recession but we're starting to see some better demand numbers in their coatings and electronics divisions," Argus Research analyst Bill Selesky said.

"That would tell you that maybe their results have bottomed, slowly getting better in some cases but they still feel the effects of the global recession."

Deutsche Bank analyst David Begleiter told clients in an Oct. 12 research note to watch all chemical companies for fourth-quarter guidance because of uncertainty over inventories at year-end and to consider if the cost savings achieved this year will be sustainable.

STOCK PERFORMANCE: Shares of Dow Chemical climbed 61.5 percent in the third quarter.

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