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Dow earnings beat estimates on gains in all segments

6:22 AM MST | January 29, 2014 | Robert Westervelt

Dow Chemical posted fourth-quarter net income of $963 million, reversing a year-ago loss of $716 million. Earnings were up in all segments, with particular strength in performance plastics. Reported adjusted earnings were 65 cts/share, up 97% compared with the year-ago quarter and 51% above the consensus analyst estimate as reported by Thomson Reuters.

Dow also announced today that it would increase its quarterly dividend by 15% and expanded its share buy-back program to $4.5 billion, from $1.5 billion, of common stock to be completed in 2014.

Sales were $14.4 billion, up 3% versus the prior-year quarter. Sales increased in all operating segments excluding feedstocks and energy, Dow says. Adjusted Ebitda for the quarter was $2.1 billion, an increase of 31% versus the year-ago period, with gains in every operating segment. Adjusted Ebitda margin expanded more than 300 basis points, led by gains in performance plastics, performance materials, and coatings and infrastructure solutions, Dow says.

Hedge fund Third Point (New York) last week revealed a significant investment in Dow and promptly urged management to consider spinning off its petrochemical operations. While not directly addressing Third Point’s proposal, Dow chairman and CEO Andrew Liveris notes that  the company’s “focus in running a disciplined, integrated strategy and managing [its] portfolio with targeted growth and productivity metrics by business and value chain was clearly evident in the quarter.” Liveris adds that the company “generated significant earnings growth, margin expansion, and return on capital improvement through Dow-specific actions that gained momentum throughout 2013.”

Dow says volume rose 3% on an adjusted basis. Volume growth was led by emerging geographies, which increased 7%, driven by Latin America, which was up 13%. US volumes were up 3%. Price increased 1% primarily because of gains in performance plastics, up 7%, and performance materials, up 1%, partially offset by declines in feedstocks and energy, down 6%.

Ebitda gains across all segments

The performance plastics segment's adjusted Ebitda was $1.2 billion, up 40% from the same period last year on broad-based pricing gains across all geographies, Dow says. Sales in performance plastics were $3.9 billion, up 5% compared with the same quarter last year. Excluding the impact of divestitures, sales were up 8%, with double-digit gains achieved in Latin America, North America, and Asia/Pacific, Dow says. The plastics segment accounted for 57% of adjusted Ebitda in the quarter.

Performance materials adjusted Ebitda was $421 million, up 58% compared with the year-ago period. Sales in the segment were $3.4 billion, up 1% versus the year-ago period, with gains in North America; Europe, the Mideast, and Africa (EMEA); and Latin America. Volume was flat, while prices rose 1% compared with the same quarter last year.

The feedstock and energy segment's adjusted Ebitda was $217 million, an increase of 12% from the year-ago period. Segment sales were $2.4 billion, down 6% versus the same period last year. Volume was flat, while price declined by 6% primarily because of lower aromatics prices. Chlor-vinyl sales increased with price and volume gains in ethylene dichloride.

Agricultural sciences Ebitda was up 13%, to $177 million. Ag segment revenues were up 13%, to $1.8 billion, on sales gains in all regions, led by double-digit growth in Latin America and North America, Dow says.

Adjusted Ebitda in coatings and infrastructure was $173 million, up 34%, due to improving market fundamentals coupled with cost discipline, Dow says. Segment sales increased $1.7 billion, up 10%, with gains in North America, EMEA, and Asia/Pacific driven by double-digit volume growths in each region.

Electronic and functional materials increased 46%, to $226 million. Segment revenue increased 2.9%, to $1.1 billion. “Cost discipline and strong volume more than offset price declines, lifting Ebitda," Dow says.

“Tentative” global growth

“While we are seeing positive trends in major economies as we enter 2014, global growth remains tentative, continuing to drive business uncertainty,” Liveris says. “Our actions to improve return on capital, grow profitability, and generate cash are accelerating as we go deeper into attractive end-use markets, exit complex but nonstrategic assets and value chains, and maintain a strong focus on productivity metrics and cost controls.”

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