Dow Chemical Weathers Stormy 2011 to Post Record Sales, Despite Headwinds in Demand, Europe

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading chemicals producer The Dow Chemical Company (NYSE:DOW) (Midland, Michigan) reported record annual sales revenue for full-year 2011, despite faltering demand and a rocky European market, as prices strengthened globally. For the full year, Dow reported net income of $2.4 billion, a 21.93% increase from 2010. But the fourth quarter of 2011 saw a net loss of $20 million, compared with net income of $426 million in fourth-quarter 2010.

Total sales stood at a record $59.99 billion for the year, an 11.76% increase from 2010, and $14.1 billion for the quarter, a 2.37% increase from the same period in the previous year. Sales in emerging economies exceeded $19 billion for the year, including more than $10 billion in the Asia Pacific region, also setting records for Dow. However, the continued economic turmoil in Western Europe and destocking in customer supply chains took a bite out of the company's profits. Prices improved 13%, with increases in all geographic areas and double-digit gains in most of the major segments. Volumes declined, partly due to the impact of divestitures.

Sales in Dow's Electronic and Functional Materials segment were negatively affected by lower demand for interconnect and semiconductor products. Weaker infrastructure investments by state-owned utilities decreased volumes in the company's telecommunications business. However, North America saw stronger demand for acrylic products, while polyurethanes saw a double-digit increase in sales, with similarly strong volume gains in most geographic regions. The Agricultural Sciences segment saw record sales in the fourth quarter.

Industrial Info is tracking more than $13 billion in active projects involving Dow Chemical, including the $411 million addition of a chlor-alkali unit at the company's plant in Freeport, Texas, in a 50:50 joint venture with Mitsui and Company. The project will use Dow's membrane cell technology and process equipment to produce about 820,000 metric tons per year of chlorine and 880,000 metric tons per year of caustic soda. The company also is performing a $250 million restart at its St. Charles Taft Petrochemicals plant in Hahnville, Louisiana, during which it will perform inspections, repairs and upgrades to restart a 1 billion-pound-per-year ethylene unit that has been idled since 2009.

"The fourth quarter presented our industry with a challenging operating environment as new uncertainty, driven mostly because of the sovereign debt issues in Western Europe, coupled with traditional seasonality, led to substantial destocking across supply chains as customers reduced inventories prior to year's end," said Andrew N. Liveris, the chairman and chief executive officer of Dow, in a conference call. "We anticipated this volatility and were prepared."

He later added: "This quarter, our sales in emerging geographies reached 35% of our total global sales, hitting our stated medium-term target. The benefits of our growing global footprint were evident in our volume results, as growth in emerging geographies fully offset weakness in developed regions, particularly Western Europe."

All but one of Dow's six major segments reported gains in sales for the quarter, while all reported gains in for the year. However, only two reported gains in earnings before interest, income taxes, depreciation and amortization (EBITDA) for the quarter:

• The Electronic and Functional Materials segment reported sales of $1.06 billion for the quarter, a 0.38% increase from fourth-quarter 2010, and EBITDA of $234 million, a 15.52% decrease. For the year, sales stood at $4.6 billion, a 9.42% increase from 2010, and EBITDA stood at $1.08 billion, a 3.04% increase.
• The Coatings and Infrastructure Solutions segment reported sales of $1.56 billion for the quarter, a 0.91% increase from the same period in the previous year, and EBITDA of $177 million, a 29.48% decrease. For the year, sales stood at $7.2 billion, a 9.16% increase from 2010, and EBITDA stood at $1.17 billion, a 5.12% decrease.
• The Agricultural Sciences segment reported sales of $1.34 billion for the quarter, a 5.33% increase from fourth-quarter 2010, and EBITDA of $145 million, compared with $72 million. For the year, sales stood at $5.66 billion, a 16.14% increase from 2010, and EBITDA stood at $913 million, a 42.66% increase.
• The Performance Materials segment reported sales of $3.55 billion for the quarter, a 5.14% increase from the same period in the previous year, and EBITDA of $225 million, a 33.23% decrease. For the year, sales stood at $14.65 billion, a 4.94% increase from 2010, and EBITDA stood at $1.75 billion, a 1.98% increase.
• The Performance Plastics segment reported sales of $3.66 billion for the quarter, a 5.67% decrease from fourth-quarter 2010, and EBITDA of $667 million, a 29.19% decrease. For the year, sales stood at $16.26 billion, a 6.53% increase from 2010, and EBITDA stood at $3.44 billion, a 3.51% decrease.
• The Feedstocks and Energy segment reported sales of $2.85 billion for the quarter, a 13.57% increase from the same period in the previous year, and EBITDA of $175 million, a 15.13% increase. For the year, sales stood at $11.3 billion, a 33.64% increase from 2010, and EBITDA stood at $940 million, compared with $471 million in 2010.

Although Dow executives do not foresee any dramatic market improvements in the first quarter of 2012, they expect the economic recovery will pick up the pace in the second quarter and continue for the rest of the year. They also expect the economic problems in Western Europe to persist in the near future. However, strengthening North American feedstocks are expected to benefit the downstream business.

"We're taking significant and proactive steps to take further advantage, not only in increases in supplies of U.S. shale gas, but also as industry operating rates improve," Liveris said in the conference call.

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