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Last updated: October 24, 2012 11:44 pm
Dow Chemical warned that difficult conditions in the world economy “may have extended staying power” and said it was cutting some of its planned investments, as it reported a 32 per cent drop in third-quarter earnings.
Like DuPont, 3M, and other US chemical and industrial groups that reported this week, Dow said it faced challenging markets, with prices plunging in Europe and China.
However, it managed to increase sales volumes, excluding the effect of a disposal last year, and earnings were better than analysts had expected.
Net income was down 39 per cent from the equivalent period last year at $497m, giving earnings of 42 cents per share, down an underlying 32 per cent.
Dow’s shares closed 4.7 per cent higher at $29.88.
Like many companies reporting in this earnings season, however, Dow revealed weaker-than-expected revenues, down 10 per cent at $13.6bn.
The results were published on Tuesday night after the “inadvertent and premature” release of a restructuring announcement. Dow had earlier that evening revealed that it planned to cut 2,400 jobs and close 20 plants worldwide.
It was the second accidental early publication of a high-profile corporate statement in as many weeks, following Google’s premature results release last Thursday.
Andrew Liveris, Dow chief executive, said that including measures already announced the cost cuts would deliver $2.5bn of annual savings, including a $500m reduction in capital spending, “to mitigate a slowing world economy”.
He added: “We recognise that these difficult conditions may have extended staying power, as the new reality is that we are operating in a slow-growth and volatile world.”
Mr Liveris said the world economic slowdown meant the company had to “stop future growth projects that in this environment are no longer affordable.”
He identified alternative energy as one area where growth prospects now looked less favourable. Dow was hit in the third quarter by a steep fall in profits at its Dow Corning joint venture, which makes polysilicon used in solar panels.
One of the US plants Dow plans to close is also affected by changing energy markets: it makes filters for removing small particles from the exhaust of diesel-fuelled vehicles, a market that the company now expects will grow more slowly than it had previously believed.
However, its investments intended to benefit from cheap petrochemical feedstocks in the US Gulf of Mexico region and Saudi Arabia are still moving forward as planned, Mr Liveris added.
Prices for Dow’s products worldwide were lower in the quarter than a year ago, with the steepest falls in Europe, down 12 per cent, and greater China, down 11 per cent. Prices in North America fell 8 per cent.
Sales volumes rose, excluding the effect of the disposal of the polypropylene business last year, but the increases were not enough to offset the price falls.
One bright spot was that the cost of energy and feedstocks used by Dow fell $1.2bn, contributing to a 9 per cent reduction in its cost of sales and protecting profit margins from a steeper decline.
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