The Urethane Blog

Dow Improves Margins in Q2

Dow Chemical is cleaning up on the commodity price crash

  • Jul. 23, 2015, 7:49 AM
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Dow Chemical CEO Andrew Liveris (L)   in Washington August 5, 2014.   REUTERS/Jonathan Ernst   Thomson ReutersDow Chemical CEO Andrew Liveris and Dangote Group CEO Aliko Dangote take the stage for a panel discussion as part of the U.S.-Africa Business Forum in Washington

(Reuters) – Dow Chemical Co reported a better-than-expected quarterly profit as the company's operating margins rose for the eleventh quarter in a row, helped largely by low raw material costs at its plastics-making business.

The U.S. chemical maker's plastics business has benefited from easy access to cheap shale gas, which is stripped down into ethane to make ethylene – a key component of plastics and many chemicals.

Global crude oil prices have halved in the past year, narrowing the price difference between crude oil-derived naphtha and natural gas-based ethane cracking, which erased the competitive advantage U.S. chemical firms had over their European rivals.

Still, Dow's margins have held steady due to its cost-cutting efforts. The company's margins rose nearly to 19 percent in the second quarter ended June 30 from 15 percent a year earlier.

The company cut 3 percent of its global workforce in May as part of a broader plan to reduce costs by $1 billion over three years.

Dow has moved its focus to more lucrative businesses such as performance plastics and electronics to lower its exposure to commoditized chemicals.

"We see growing momentum in construction, packaging and automotive markets outweighing some softness in agriculture and energy-related markets," Chief Executive Andrew Liveris said in a statement on Thursday.

Dow has sold assets worth $7.0-$8.5 billion since 2013, including a $5 billion sale of a bulk of its chlorine business to Olin Corp in March.

The company took a $375 million pre-tax charge in the latest quarter, mainly due to the job cuts.

Excluding the charge and other items, the company earned 91 cents per share, beating analysts' average estimate of 83 cents per share, according to Thomson Reuters I/B/E/S.

Net income attributable to shareholders rose 29 percent to $1.14 billion, or 97 cents per share. Sales fell 13.5 percent to $12.91 billion, nearly in line with analysts' estimates.

Through Wednesday's close of $50, Dow's stock has risen nearly 10 percent this year, compared with a 5 percent fall in the S&P 500 diversified chemicals index .

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