Cost controls boost Dow Chemical marginsDow Chemical Co., the No. 1 U.S. chemical maker by sales, reported a stronger-than-expected rise in quarterly profit as cost controls helped boost margins in its divisions that make coatings, plastics and crop-protection products.
Dow Chemical Co., the No. 1 U.S. chemical maker by sales, reported a stronger-than-expected rise in quarterly profit as cost controls helped boost margins in its divisions that make coatings, plastics and crop-protection products.
The company says margins expanded across most of its businesses in the first quarter even after an increase of more than $300 million in the cost of feedstock and energy.
“A lot of the (cost-saving) actions that were taken over the last couple of years will be benefiting earnings this year and next,” says John Roberts, who leads U.S. chemical coverage at UBS Investment Research.
Roberts thinks most of the company’s biggest cost-cutting steps were behind it. Dow Chemical cut 5 percent of its workforce and shuttered 20 plants in late 2012.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in Dow Chemical’s coatings and infrastructure solutions business rose 20 percent in the quarter.
EBITDA, excluding some items, rose 9 percent in the company’s agricultural sciences business, while performance plastics reported a 5 percent increase on the same basis.
The performance plastics unit, Dow Chemical’s biggest, reported its seventh straight quarter of margin expansion as higher prices helped the company offset higher costs for raw materials such as propane and ethane.
The unit, which supplies plastics to toymakers, builders and automakers among other industries, generated nearly a quarter of the company’s total sales in the three months ended March 31.
Dow Chemical has narrowed its focus to electronics, packaging and agriculture to shield itself from businesses that are more susceptible to swings in commodity prices.
The company, which is pruning its portfolio and discarding non-core assets, raised its asset sales target by up to $2 billion to as much as $6 billion last month.
Hedge fund titan Daniel Loeb’s Third Point LLC wants Dow Chemical to spin off its lucrative but slow-growing petrochemical unit and focus on specialty materials.
The company has resisted, saying repeatedly that it wants to use its commoditized raw materials businesses to keep costs down in its high-growth specialty chemicals businesses.
Dow Chemical has earmarked its epoxy business and some chlorine and derivatives assets for sale as it increases its focus on specialty chemicals.
It is also looking to shed non-core businesses in its functional materials and performance materials units — two of the slowest-growing units in the latest quarter.
Dow Chemical reaffirmed on its plans to complete its $4.5 billion share buyback program by year-end.
The company’s first-quarter net income rose to $964 million, or 79 cents per share, from $550 million, or 46 cents per share, a year earlier. Analysts on average expected the company to earn 71 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 0.5 percent to $14.46 billion, missing the average analyst estimate of $14.72 billion.