Dow Chemical Co will shut a number of plants and eliminate about 1,000 jobs to cut costs and direct capital toward businesses with better growth prospects, the largest U.S. chemical maker said on Tuesday.
Dow said it would incur a related charge of $500 million to $600 million, including severance costs and asset write-downs.
The plant shutdowns and job cuts will generate annual savings of about $180 million, the company said.
Cost reductions is always good, because the chemical industry is very slow at cost cutting, so clearly this is a step in the right direction, HSBC analyst Hassan Ahmed said.
Ahmed also said the cuts targeted the right end-markets and product lines. But he cautioned that history has shown savings generated through such actions normally get negated by the rate at which raw material and other costs keep rising.
Dow this year has been hurt by soaring hydrocarbon feedstock and energy costs. It has been attempting to improve its earnings through a series of joint ventures and by expanding its more profitable specialty businesses.
Our focus on financial discipline and low cost ... remains as sharp as ever, and we will continue to seek ways to refine our organizational structure, asset base and business portfolio, Chief Executive Andrew Liveris said in a statement.
Dow has been under pressure from investors to announce a transformational deal that would reduce its exposure to the more cyclical and low-margin commodity chemicals business.
The Midland, Michigan-based company postponed an investor meeting that was to be held last month, and the move has made analysts and investors believe a deal from Dow is imminent.
Analysts expect Dow to announce a joint venture for its North American commodity chemical assets or the acquisition of a specialty chemical company, both of which could change its earnings profile.
Dow said it would exit the automotive sealers business in North America, Asia Pacific and Latin America within nine to 18 months and explore strategic options for its Europe business.
It will also take an impairment charge related to its plan to shut down its agricultural sciences manufacturing facility in Lauterbourg, France. Dow plans to exit the business due to overcapacity in the industry, a disadvantaged cost position, and increasing pressure from generic suppliers.
The company will also write down an investment in its Petromont and Co polyethylene joint venture in Canada. Polyethylene is a very common plastic used for bags.
It will idle a styrene plant in Camacari, Brazil, from January 1, amid tougher competition and weak industry fundamentals.
The company will also close its facility in Aratu, Brazil, that makes hydroxyethyl cellulose, a naturally derived polymer used as a thickener in creams and lotions, in the face of capacity limitations, high structural and raw material costs.
Dow unit Union Carbide Corp will shut a polypropylene facility in Louisiana by year-end. Polypropylene is used in fibers as constituents of fabrics, upholstery and carpets.
It will also trim research and development efforts at its Union Carbide site in West Virginia.
Shares of Dow, which have fallen about 4.4 percent in the last three months, were down 39 cents at $41.15 in afternoon trade on the New York Stock Exchange.