Dow Chemical
(
DOW
) slipped to a bigger loss in fourth-quarter 2012, thumped by a
sizable restructuring charge and loss on goodwill impairment in
its Formulated Systems business. Weakness across end markets,
especially in China, and weak pricing also hurt the
results.
The U.S. chemical kingpin, whose products are used across a
broad spectrum of industries, posted a loss of $716 million or 61
cents a share, significantly higher than a loss of $20 million or
2 cents a share recorded a year ago.
Pressed by a challenging global economic environment, Dow
announced a major restructuring program in Oct 2012 which is
expected to deliver annual cost savings of roughly $500 million
by end-2014. As part of the program, the company is slashing
roughly 2,400 jobs and shuttering around 20 of its plants.
Charges (of $990 million) associated with the move crimped its
bottom line in the fourth quarter.
Barring one-time items (including restructuring and goodwill
impairment charges), the company earned 33 cents a share in the
quarter, up from 25 cents a year ago. That, however, missed the
Zacks Consensus Estimate by a penny.
For full-year 2012, Dow posted a profit of $842 million or 70
cents per share, down 65% from $2,402 million or $2.05 per share
logged a year ago. Excluding items, earnings were $1.90 a share,
in line with the Zacks Consensus Estimate.
The Michigan-based company's shares fell 3.4% in
pre-market trading.
Revenue, Volume and Pricing
Dow raked in revenues of $13,917 million in the reported
quarter, down 1% year over year, as gains across agricultural
sciences, performance plastics, electronic and functional
materials and coatings businesses were eclipsed by declines in
feedstocks and energy and performance materials. Sales, however,
beat the Zacks Consensus Estimate of $13,667 million.
Sales fell narrowly in North America while were essentially
flat in the Asia Pacific. Latin America registered modest
improvement while Europe saw a 3% decline. Price edged down 1%
year over year while volume was flat in the quarter.
For the full year, sales fell 5% year over year to $56,786
million, but managed to squeak past the Zacks Consensus Estimate
of $56,456 million.
Segment Review
Electronic and Functional Materials
Revenues rose 3% year over year to $1.1 billion in the
reported quarter as higher volume offset lower pricing.
Electronic materials recorded modest gain in the quarter.
Semiconductor technologies business saw higher demand driven by
an increase in utilization in Korea and Taiwan.
Functional materials sales rose across the board as higher
volume more than offset lower pricing. Healthy demand was
witnessed across energy, water, pharmaceutical, personal care and
food sectors.
Coatings and Infrastructure Solutions
Sales crept up 1% to $1.6 billion in the quarter as an
increase in volume was neutralized by lower pricing. Sales rose
in the coating materials business as higher demand in industrial
and architectural coatings led to volume gains. Building and
construction business saw lower sales as volumes fell. The
company's water and process solutions business reported lower
sales largely due to a decline in volumes.
Agricultural Sciences
The segment recorded the biggest gain with sales climbing 17%
year over year to a record $1.6 billion, benefiting from higher
volume and pricing. Crop protection products revenues jumped 10%
riding on gains across all geographic regions. New crop
protection revenues leapt 11%.
Performance Materials
Revenues slipped 5% to $3.4 billion as both volume and price
declined in the quarter. Propylene oxide/propylene glycol sales
fell on lower pricing. Polyurethanes sales fell while lower
volume in Europe and Asia Pacific led to a decline polyglycols,
surfactants and fluids revenues.
Performance Plastics
Sales edged up 1% to $3.7 billion in the quarter as higher
pricing was offset by lower volume. Sales fell across elastomers
and electrical and telecommunications businesses. Performance
packaging registered higher sales on gains across North America
and Latin America.
Feedstocks and Energy
The segment recorded a 9% decline in sales to $2.6 billion.
Lower sales of olefins contributed to a decline in hydrocarbons
sales. The chlor-alkali/chlor-vinyl business gained from higher
caustic soda pricing. Sales fell in ethylene oxide and ethylene
glycol business on lower volume.
Financial Health
Dow ended 2012 with cash and cash equivalents of roughly $4.3
billion, down 21% year over year. Total long-term debt declined
roughly 2% year over year to around $20.6 billion. The company
generated operating cash flows of $4.1 billion during 2012
including $1.6 billion in the fourth quarter.
Outlook
Moving ahead, Dow noted that it will focus on driving earnings
leveraging its feedstock strength and strong momentum in the
agricultural sciences business. The company will continue to
pursue its cost reduction and efficiency programs while
maximizing shareholder returns.
Dow, under its restructuring program, is reducing its global
headcount by 5% and closing some of its manufacturing facilities.
The company targets aggregate cost savings of $2.5 billion with
$1 billion expected this year.
Our View
Dow is benefiting from strong fundamentals in agriculture and
food markets. A string of innovative products in its pipeline
also adds to its strength. However, it contends with weakness in
the electronics and construction end-markets. Building and
construction sales remain under pressure due to lower volume in
Europe.
Dow currently retains a short-term Zacks Rank #3
(Hold).
Dow's results shed light on the end market scenario and demand
trend for chemical products. Among the other big chemical names,
DuPont
(
DD
), which reported on Dec 22, delivered better-than-expected
fourth quarter revenues and earnings on strength in its
agriculture and food businesses and synergies of Danisco
acquisition. However, higher costs and weakness across titanium
dioxide and photovoltaic markets led to a steep fall in its
profit.
Celanese
(
CE
) reported a mixed fourth quarter on Jan 29 with earnings beating
expectations while sales missing the same.
Eastman Chemical
(
EMN
) will report its fourth quarter results after the closing gong
today.
CELANESE CP-A (CE): Free Stock Analysis
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DU PONT (EI) DE (DD): Free Stock Analysis
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DOW CHEMICAL (DOW): Free Stock Analysis
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EASTMAN CHEM CO (EMN): Free Stock Analysis
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