Dow talks up prospects as global business picks up

Dow Chemical has made it through a challenging 2009 and is looking forward to better days in 2010.

Combined sales at Dow’s two plastics-related business units — Basic Plastics and Performance Products — were down 30% in 2009 to about $19bn. But the units’ combined operating profit roughly was flat at around $2.8bn.

Overall sales at Dow — which ranks as one of the world’s largest plastics and chemicals firms — were down 22% to $44.9bn, although the firm’s full-year profit grew 3% to $676m.

Plastics-related businesses accounted for about 40% of Dow’s segment sales in 2009, with Basic Plastics — polyethylene, polypropylene, styrenics and polycarbonate — and Performance Products — polyurethane, epoxy and other specialty materials — each chipping in about 20%. Based on sales in dollar amounts, those units were the two largest among Dow’s eight operating segments in 2009.

During a 2 February conference call, Dow ceo Andrew Liveris was effusive in praise of his firm’s performance and of its future prospects.

“We have the right portfolio, the right geographic position and the right pipeline,” he said. “The Dow of tomorrow is here today.”

In 2010, Liveris said Dow will continue to look for partners for its commodity plastics units and for a buyer for its Styron styrenics business, including polystyrene.

Regarding commodity plastics (PE, PP and PC), Liveris said that Dow “is talking to three strategic partners in a JV construct,” but he added that Dow “is not in a hurry”.

“We’re not going to let an asset go at a multiple defined by deals completed in the last six to 12 months,” he said. “I think we’ll do something in 2010, but we’re not in a hurry to get a deal done at the wrong valuations.”

On Styron, Liveris said that Dow is in the second round of “a very robust process” and that the firm “is likely to have something to say in the next month or two”. Financial press reports have identified South Korean conglomerate Lotte as a potential Styron buyer.

Liveris also credited the firm for recovering from the collapse of a planned plastics joint venture with a Kuwaiti firm in late 2008 and from the tumultuous acquisition of specialty chemicals form Rohm and Haas in the first half of 2010.

“We acted quickly to position ourselves with the new realities,” he said, while listing the following 2009 Dow accomplishments:

* Reducing overall debt by $2.5bn since 1 April.

* Selling off $3bn of non-core assets, including the Morton Salt unit of Rohm and Haas.

* Meeting 70% of its two-year target of $2.5bn in Rohm and Haas-related savings.

* Paying off an acquisition-related bridge loan ahead of time.

* Establishing a Dow-record $1.6bn research and development budget for 2010.

Dow’s global Basic Plastics sales were up 17% in the fourth quarter, when compared to the year-ago period, while Performance Products’ sales were up about one percent in the same comparison. Performance Products benefited from higher PU volume because of successful penetration of appliance end markets, while Basic Plastics grew as a result of rising global demand and strong exports from North America to Asia, officials said.

For Dow’s PE business — one of the world’s largest — the fourth quarter of 2009 was its fourth consecutive quarter of global volume growth, a performance that interim Chief Financial Officer William Wiedeman described as “truly impressive” on the conference call. PE also generated $1.7bn in pretax profit for Dow in 2009, Wiedeman added.

And although Dow’s 2009 performance was strongest in Asia and other “emerging geographies”, Liveris said that he feels better about prospects in North America and Europe than he did a year ago.

“The US economy’s growth rate in the fourth quarter was its fastest in more than six years,” he said. “That’s another data point to show that a recovery has taken hold.

“North America is going to get better in the next six months. In the U.S., we think the recovery will be shaped more like a U instead of a V as it is in the developing world.”

At investment firm Bank of America/Merrill Lynch in New York, stock analyst Kevin McCarthy is a little cautious when assessing Dow’s blueprint for 2010.

“We like Dow's ongoing portfolio transformation toward specialty chemicals and we are comforted by improvement in Dow's capital structure,” McCarthy wrote in a Feb. 2 note to investors. “However, we are concerned with potential for a modest pace of recovery in developed markets given excess industry capacity in key commodities.”

Related links:
Dow Chemical - www.dow.com