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Dow beats estimates

7:57 AM MDT | July 23, 2014 | Rebecca Coons

Dow Chemical's second-quarter results beat estimates as margins improved in its performance plastics segment and sales increased across all of the company's business segments.

Dow reports second-quarter net income of $882 million, down 62.3% year-on-year (YOY). The 2013 quarter included $2.2-billion in proceeds from the K-Dow arbitration resolution.

Adjusted earnings of 74 cts/share were up 16% YOY and beat the 72 cts/share analyst consensus compiled by Thomson Reuters. 

Sales were up 2% YOY, to $14.9 billion. Gains were reported in all operating segments, led by 4% and 5%  increases in performance plastics and electronic and functional materials sales, respectively. 

Dow reports adjusted sales gains in most geographic areas, with increases reported both in developed regions (up 3%) and in emerging regions (up 2%). Gains were led by Western Europe  and the United States, up 6% and 5% respectively. 

Ebitda was $2.2 billion, up 5% YOY on an adjusted basis.  Ebitda rose in most operating segments, led by Performance Materials (up 36%), as a result of ongoing productivity actions, as well as improved pricing and demand. Performance Plastics and Electronic and Functional Materials also drove Ebitda gains, up 6% and 19%, respectively.

“Our results reflect excellent progress against Dow’s near-term priorities, and clearly illustrate our ongoing drive to execute self-help actions that are delivering growth on both the top and bottom line," says Andrew Liveris, Dow chairman and CEO. "Our performance highlights the Company- and segment-specific actions we are executing to grow profitability through an intense focus on EVA momentum, and this constant drumbeat has already delivered a more than 150 basis point improvement in return on capital year over year on an adjusted basis. As we drive these ongoing improvements to return on capital, we will further accelerate shareholder value creation and increasingly reward our shareholders – evidenced by the $3 billion we have returned year to date.”

Dow, which has been under pressure by activist investor Daniel Loeb to separate its upstream commodity chemicals business from its specialty units, expects to raise $6 billion by divesting or placing into joint ventures its epoxy and chlorine units. 

Segment Results

Performance plastics reports sales of $3.7 billion, up 2% YOY. Excluding the impact of divestitures, sales were up 4 percent. Dow's packaging and specialty plastics segment continued to increase sales in attractive markets, driven by steady growth in flexible food and specialty packaging and double-digit gains in the hygiene and medical and pipe market sectors, Dow says. Sales in electrical and telecommunications and elastomers declined despite strong market demand in power, telecommunications, transportation and hot-melt adhesives, due to supply limitations resulting from feedstock disruptions and planned maintenance turnarounds. Equity earnings for the segment were $71 million. This compares with $88 million in the year-ago period. Despite unplanned outages at the company's Plaquemine, LA, ethylene production facilities, Performance Plastics reported Ebitda of $1.1 billion, an increase of $57 million versus the same quarter last year. Performance Plastics continued to deliver profitable growth, with Ebitda margins expanding year over year for the eighth consecutive quarter, Dow says. 

Performance materials reports sales of $3.4 billion, up 1% YOY. Polyurethanes achieved revenue growth as a result of a recovering Europe, strong demand in the consumer comfort market sector, and continued growth in the industrial market sector. Sales rose in propylene oxide/propylene glycol on strong demand in North America within the detergents, food, pharmaceuticals and personal care market sectors. Strong demand in Epoxy drove revenue growth in nearly all regions. Dow Oil, Gas and Mining delivered double-digit sales gains from differentiated products aligned to shale dynamics in North America and refining and processing applications in EMEA. These gains were partially offset by lower licensing in Oxygenated Solvents and the conclusion of marketing responsibilities related to a former joint venture impacting polyglycols, surfactants and fluids, oxygenated solvents and amines – sales for the segment were up 3% excluding these items, Dow says. Equity losses for the quarter were $30 million. This compares with losses of $12 million in the year-ago quarter.

Feedstocks and energy reports segment sales of $2.6 billion, up 2% YOY, driven by increased operating rates in Hydrocarbons in Europe, which more than offset lower sales in caustic soda and ethylene glycol. Equity earnings for the segment were $125 million. This compares with $105 million in the year-ago period. The segment reported EBITDA of $190 million, down from $193 million in the year-ago period, reflecting lower caustic soda prices, partially offset by increased equity earnings.

Coatings and infrastructure solutions reported sales of nearly $2 billion, up 3% YOY. Healthy demand within the architectural and industrial coatings market sectors drove another quarter of sales growth in coating materials, Dow says. Performance Monomers increased sales in EMEA and delivered double-digit sales gains in Asia Pacific and Latin America. Dow Water and Process Solutions also delivered higher sales on increased demand for ion exchange and reverse osmosis technologies. Equity earnings increased 72% YOY, to $43 million.

Agricultural sciences reports sales up 3% YOY, to $1.9 billion. Crop protection sales rose 3%, led by insecticides, which reported double-digit gains in all regions. Sales gains from herbicides in North America and Latin America were slightly offset by declines in Asia Pacific and EMEA, which was impacted by the early start of the cereal herbicides season in Europe. Seed sales increased 3% YOY,  driven by growth in both corn and soybeans in North America and Latin America, which more than offset lower planted acres of sunflowers in Latin America. Equity earnings were slightly higher at $2 million.

Electronic and functional materials reports sales of $1.2 billion, up 5% YOY.  Dow's electronic materials segment continued to deliver sales growth due to its significant presence in Asia Pacific, differentiated technologies and strong customer relationships, Dow says. Demand for printed circuit boards – used for smartphones and the automotive market – increased sales in Interconnect Technologies. Semiconductor Technologies also reported gains due to improving foundry demand. These gains were partially offset by display technologies on lower sales in films and filters.

Functional materials drove broad-based sales gains, reporting increases in all businesses, led by food-related growth and demand for differentiated, organic-based pharmaceuticals. Microbial control delivered double-digit growth in North America and Asia Pacific due to strong demand within the energy and water market sectors. 

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