Price Increases Give Significant Boost to Dow Chemical's Quarterly Earnings

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Dow Chemical Company (NYSE:DOW) (Midland, Michigan) released its earnings for the third quarter of fiscal year 2008 on October 23. In the face of two hurricanes, rising energy and transportation costs, and reduced product demand, Dow still managed to raise its net income 6% from 3Q07, from $403 million last year to $428. Increases in price helped boost quarterly sales figures to $15.4 billion, up 13% from last year, despite a 9% decrease in sales volume.

Dow operates the largest integrated chemical-production complex in the world in the city of Freeport in Brazoria County, Texas, one of the areas hit hardest by Hurricane Ike in September. The 5,000-acre site houses more than 1,900 buildings, produces more than 27 billion pounds of products annually and contains 13 dock facilities. The Freeport site, along with sites in Clear Lake and LaPorte, Texas, and Plaquemine, Louisiana, which was affected by Hurricane Gustav, were closed before Hurricane Ike made landfall. The plants remained shut down for days while damage assessments were carried out. Although no significant damage occurred at any of the facilities, startup operations took time to complete. Availability of raw materials and transportation logistics were also affected in the aftermath of Ike.

Impact of Hurricanes Gustav and Ike helped cause the decreased sales volume. In a press release regarding the earnings, Dow stated, "Earnings in the third quarter of 2008 were unfavorably impacted by costs related to Hurricanes Gustav and Ike, which hit the U.S. Gulf Coast in the third quarter. These costs, which included the repair of property damage, clean-up costs, unabsorbed fixed costs and inventory write-offs, totaled $127 million pretax..."

Sales volumes were down in four of Dow's six operating segments, but price increases helped increase income from sales. Third quarter sales results for each segment compared with 3Q07 are as follows:

• Performance Plastics - volume down 4%, prices up 14%, sales up 10% to $4.3 billion
• Performance Chemicals - volume down 7 %, prices up 21%, sales up 14% to $2.5 billion
• Agricultural Sciences - volume up 8%, prices up 16%, sales up 24% to $976 million
• Basic Plastics - volume down 18%, prices up 25%, sales up 7% to $3.5 billion
• Basic Chemicals - volume down 20%, prices up 20%, sales flat at $1.5 billion
• Hydrocarbons and Energy - volume up 3%, prices up 40%, sales up 43% to $2.6 billion

While Dow points out that its price increases also contributed to the declining sales volumes, the strategy seems to have worked, increasing income from sales significantly in most sectors.

Industrial Info is currently monitoring more than $5 billion of North American projects involving Dow. Next month, structural construction of an estimated $1 billion polysilicon plant addition is scheduled to begin in Hemlock, Michigan. The plant is owned by the Dow Corning Corporation (Midland, Michigan), which is owned equally by Dow and Corning Incorporated (NYSE:GLW) (Corning, New York). The project will increase the plant's capacity from 19,000 tons per year to 36,000 per year and is expected to be complete in the first quarter of 2010. Information on this and other projects in the Chemical Processing Industry can be found in Industrial Info's North American Project Database.

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