Dow Chemical Co
The largest U.S. chemicals maker posted better-than-expected quarterly profit and said higher prices for its products offset $685 million in rising costs for crude oil, the building block for many of the plastics and paints that are Dow's breadwinners.
Dow's joint ventures, including Kuwait-based MEGlobal and Equate, guarantee it fixed costs for some of its raw material supply. Even as energy prices rise around the world, Dow's costs remain relatively low.
Sales in the company's lucrative plastics business, which relies heavily on crude supplies, rose 20 percent to $2.9 billion in the fourth quarter.
Dow's resilience in the face of high prices stands in contrast to rival DuPont Co
Several Dow businesses, including electronic and specialty materials, make specialized products much in demand, allowing the company to easily pass along higher costs. Apple Inc
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 said it expects first-quarter energy costs to increase by $500 million, but it sees its margins in plastics remaining strong. However, plastics volume should slip slightly due to planned outages, company executives said.
Dow's chief executive, Andrew Liveris, said the company will focus on building plants in South Korea, Thailand, Brazil and other emerging economies as it expands production of elastomers and photovoltaics.
Dow's quarterly results also got a boost from brisk agricultural and automotive sales.
Latin American buyers gobbled up much of Dow's fungicides, pesticides and genetically modified seeds, sending sales in that unit up 19 percent and volume up 20 percent.
Sales in the coatings and infrastructure unit slipped 3 percent due in part to sagging construction activity around the globe.
The automotive industry continued to buy Dow's polyurethane and other products that reduce a car's weight and increase fuel efficiency. Dow Automotive Systems saw double-digit volume growth, the company said.
U.S. industrywide auto sales rose 20 percent last month, top automakers reported.
QUARTERLY RESULTS BEAT STREET
Net income rose to $426 million, or 37 cents per share, from $87 million, or 8 cents per share, in the year-earlier period.
Excluding costs related to Dow's 2009 acquisition of rival Rohm & Haas and other one-time items, the company posted profit of 47 cents per share. Analysts expected 35 cents, 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 jumped to $313 million from $219 million a year earlier. It was the highest quarterly earnings from joint ventures in the company's history, Dow said.
The company had roughly $7 billion in cash on hand at the end of the quarter. Executives said they plan to cut that down to $2.5 billion in 2011 as they take significant action to cut Dow's $20.61 billion debt load.
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, Liveris said in a statement.
Dow shares were up 10 cents to $36.74 in late-morning trading as the broader market slipped on inflationary concerns.
Dow's stock has traded between $22.42 and $36.78 in the past 52 weeks.
(Reporting by Ernest Scheyder; Editing by Derek Caney, Dave Zimmerman)