Dow Chemical Co barely blinked at rallying energy costs in the fourth quarter as it tapped fixed-cost supplies from the Middle East and boosted customer pricing by 10 percent.
The largest U.S. chemical maker effectively dodged $685 million in higher costs for crude and natural gas, the building blocks for many of the paints and plastics that are Dow's breadwinners.
Shares rose 2.8 percent in premarket trading.
Dow's joint ventures, including Kuwait-based MEGlobal and Equate, guarantee it fixed pricing for the crude and natural gas that the rest of the world barters daily on exchanges. Even as energy prices rise around the world, Dow's own costs remain relatively low and it is able to still charge the market rate.
Several of Dow's businesses, including electronic and specialty materials, also make specialized products highly in demand, allowing the company to easily pass along higher costs.
The pricing is being set by the higher-cost crude oil link. Dow's feedstock costs are flat in these low-cost areas and crude oil prices are ripping, Alembic Global Advisors analyst Hassan Ahmed said. That stands to benefit them.
Dow's quarterly results also got a boost from brisk agricultural, plastic and electronic sales.
Net income rose to $426 million, or 37 cents per share, compared with $87 million, or 8 cents per share, in the year-earlier period.
Excluding one-time items, Dow posted profit of 47 cents per share. Analysts expected earnings of 35 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 11 percent to $13.77 billion. Analysts expected $12.48 billion.
Dow's earnings from joint ventures with companies such as Corning and two Kuwaiti firms rose to $313 million from $219 million in the year-ago period. It was the highest quarterly earnings from joint ventures in the company's history, Dow said.
Dow said much of its growth will continue to come from countries like China and India, though it noted United States results are improving.
With inflation concerns in emerging geographies, lingering unemployment issues in the United States and sovereign debt issues in Europe, we remain prepared for a reversal in momentum, Chief Executive Andrew Liveris said in a statement.
Shares rose 2.8 percent to $37.65 in premarket trading. The stock has traded between $22.42 and $36.78 in the past 52 weeks.
(Reporting by Ernest Scheyder; Editing by Derek Caney, Dave Zimmerman)