Dow Sees Global Headwinds, Many Turnarounds in Second-Quarter 2012, Moderates Outlook for Rest of Year

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading chemical product manufacturer The Dow Chemical Company (NYSE:DOW) (Midland, Michigan) continued to report declines in revenues and profits in the second quarter of 2012, as a worldwide slowdown in growth weakened demand, driving down prices, and Europe led a drop in sales revenues. All business segments, except for Agricultural Sciences, saw price and volume declines, while the number of turnarounds was unusually high. Net income for the quarter was reported to be $649 million, a 33.91% decrease from second-quarter 2011.

Net sales for the quarter stood at $14.51 billion, a 9.55% decrease from the same period last year. Soft demand, unpredictable global economic conditions, and customer destocking in most value chains diminished volumes. Dow also saw an unusually high number of turnarounds during the quarter, as well as detrimental currency exchange effects, which took $400 million out of sales. Prices declined in all geographic areas, as purchased feedstock and energy prices fell almost $1 billion. One bright spot was the Agricultural Sciences segment, which reported a second-quarter record for sales, partly due to strong results in the crop protection business. Capital expenditures for the company were $581 million, a $17 million increase from second-quarter 2011.

Industrial Info is tracking more than $16 billion in active projects involving Dow, including the $250 million restart of Ethylene Unit No. 2 at the St. Charles Taft Petrochemicals Plant in Hahnville, Louisiana. The company will perform inspections, repairs and upgrades in order to restart the 1 billion-pound-per-year unit, which has been idled since 2009. The project is expected to be completed in January 2013.

"Global economies have not only been volatile, but conditions clearly deteriorated as the quarter progressed," said Andrew Liveris, the chairman and chief executive officer of Dow, in a conference call. "This led to weakening demand and extremely cautious buying sentiment, which in turn impacted pricing and volume dynamics. In addition, the fragile European environment placed significant downward pressure on currency for businesses operating in that region, and Dow was no exception, given our large footprint in the European Union."

Agricultural Sciences was the only Dow segment to report increases in sales and earnings before interest, income taxes, depreciation and amortization (EBITDA) when compared to the same period last year:

• The Electronic and Functional Materials segment reported sales of $1.15 billion for the quarter, a 3.84% decrease from second-quarter 2011, and EBITDA of $287 million, basically unchanged from the amount reported in the same period last year.
• The Coatings and Infrastructure Solutions segment reported sales of $1.89 billion for the quarter, a 5.69% decrease from the same period last year, and EBITDA of $337 million, an 8.42% decrease.
• The Agricultural Sciences segment reported sales of $1.68 billion for the quarter, an 11.73% increase from second-quarter 2011, and EBITDA of $307 million, a 6.97% increase.
• The Performance Materials segment reported sales of $3.37 billion for the quarter, a 12.67% decrease from the same period last year, and EBITDA of $350 million, a 27.23% decrease.
• The Performance Plastics segment reported sales of $3.71 billion for the quarter, a 16.44% decrease from second-quarter 2011, and EBITDA of $760 million, a 20.67% decrease.
• The Feedstocks and Energy segment reported sales of $2.66 billion for the quarter, a 10.33% decrease from the same period last year, and EBITDA of $134 million, a 47.24% decrease.

Continued weakness in Dow Corning, a subsidiary that is a leader in silicon-based technology, is expected to offset a smaller number of turnarounds in the third quarter of 2012. Turnaround costs are expected to decline $100 million, but will likely be $50 million less than third-quarter 2011 amounts. A weakened euro is expected to keep currency headwinds strong. In response to uncertain economic conditions, the company plans to implement efficiency and cost-reduction measures, as well as reduce the outlook for capital expenditures.

"Looking forward, we believe that it is unlikely there will be broad positive development in the global economy in the second half of 2012," Liveris said in the conference call. "Europe continues to be an area of major concern, as ongoing recessionary conditions now appear to have broader implications across the rest of the world--and this has instilled increased caution among investors and consumers."

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