Dow Chemical beats 2Q profit forecasts

Dow’s sales fell 13.5 percent to $12.91 billion in the second quarter ended June 30, hurt by a strong dollar and weak oil prices that are eroding its competitive advantage.

The firm’s Performance Materials & Chemicals unit – including Dow’s polyurethanes and epoxy businesses – saw first-half sales fall 12 percent to less than $6.5 billion, even as pretax profit ballooned nearly 90 percent to nearly $1.8 billion. However, relatively lower natural gas prices in the U.S. during the second quarter, compared to the previous year, primarily because of ample inventories, could mitigate the impact of lower oil prices on the company’s margins. Profit excluding some items was 91 cents, exceeding the 82-cent average of 17 estimates compiled by Bloomberg.

“Performance plastics experienced the highest margin growth” amid lower feedstock costs and good price management, Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said by phone Thursday.

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An expected uptick in demand for products in the construction, packaging and automotive markets should help offset some of the weakening demand for chemicals in the energy and agricultural sectors, he wrote.

Sales volumes in the quarter climbed 3 percent, led by a 9 percent gain in plastics.

China’s economy grew an annual 7 percent in the second quarter, beating estimates.

Dow, like other U.S. chemical makers, has benefited from cheap U.S. shale gas, which is stripped down into ethane to make ethylene – a key component of plastics and many chemicals.

Through disciplined commercial and operational excellence, coupled with underlying strength in demand for Dow products, we once again generated significant earnings growth, margin expansion and strong free cash flow in the quarter – in the midst of record-level growth capital spending.

“The inputs have gone down way faster than the price of the output”, he said.

Dow Chemical despite the many problems it faced managed to bring down its costs. The stock has decreased roughly 5 percent in the last 12 months.

Dow said Thursday it plans to eliminate 1,750 jobs due to the chlorine business separation. The company in the last quarter same year reported adjusted net earnings of $893 million or an adjusted EPS of $0.74. That price however remains higher than the start of 2015, when Dow’s per-share price was around $45.50.