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Dow Chemical to cut $1 billion in 3 years

Dow Chemical Co., the No. 1 U.S. chemical maker by sales, says it is looking to cut fixed costs by $1 billion in the next three years, building on reductions that have helped boost margins.

Dow Chemical Co., the No. 1 U.S. chemical maker by sales, says it is looking to cut fixed costs by $1 billion in the next three years, building on reductions that have helped boost margins.

Shares of the company, which reported a better-than-expected profit for the fourth straight quarter, rose nearly 4 percent.

Rival Dupont says it plans to shave off $1 billion of annual costs by 2019.

Dow, which says it had been cutting fixed costs annually by 3 percent since 2012, did not elaborate on the latest cost cuts.

Low raw material costs helped push up margins for the ninth straight quarter in Dow's plastics business, contributing to a 43 percent jump in net income in the three months ending September.

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Dow's plastics business has benefited from a shale boom in the U.S. that has pulled down prices of raw materials such as ethane and naphtha, giving the company an edge over oil-dependent European rivals.

Ethane crackers in North America could maintain their cost advantage status even at $80 oil, according to Howard Ungerleider, Dow's newly appointed chief financial officer.

Global benchmark Brent crude was trading at about $86 per barrel on Oct. 22, down about 25 percent since June.

"We would expect ... modestly lower margins in 2015," UBS analyst John Roberts says. He cut his price target to $54 from $59.

Dow's European operations will benefit from the fall in oil prices.

"Our naphtha crackers (in Europe) will be making money they weren't a few months ago," says chief executive Andrew Liveris. He says there could be some "short-term pressure" from excess supply.

The performance of the petrochemical business might also help Dow ward off demands from hedge fund manager Daniel Loeb to separate the commoditized raw material units from specialty chemicals businesses.

"I think they have proven that the integrated business model is successful in petrochemical," says Stephen Hoedt, an analyst with Key Private Bank. "The large return of cash to shareholders has probably done more than enough to make the activists happy."

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Dow, which has narrowed its focus to packaging, electronics and agriculture, has a $4.5 billion share repurchase program and is looking to raise as much as $6 billion from asset sales.

Third-quarter earnings before interest, taxes, depreciation and amortization rose 31 percent in Dow's performance plastics unit, which makes products used by toy manufacturers, car makers and the packaging industry.

Adjusted profit was 72 cents per share, higher than the average analyst estimate of 68 cents.

Revenue rose 5 percent to $14.41 billion, beating the average analyst estimate of $14.31 billion.

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