By Alison Sider and Tess Stynes
Dow Chemical Co.'s efforts to cut costs and focus on core
businesses helped drive a 65% increase in first-quarter profit, the
company said Wednesday.
The Midland, Mich., company's profit of $1.05 billion, or 79
cents a share, on revenue of $14.46 billion exceeded market
expectations. Analysts polled by Thomson Reuters expected a
per-share profit of 71 cents on revenue of $14.72 billion. Last
year, Dow's first-quarter profit was $635 million, or 46 cents a
share, including the impact of restructuring-related effects and
debt-extinguishment charges. Without that, last year's adjusted
earnings were 69 cents a share.
The company said it boosted profit margins across the board
despite North America's winter weather problems, a $300 million
increase in the cost of energy feedstocks such as natural gas, and
a sluggish economic recovery. Sales growth in the first quarter was
led by Dow's performance plastics segment, which rose 6% on an
adjusted basis, thanks to price increases. Research-and-development
expenses fell by 10% in the period while gross margins inched
higher to 18.9% from 18.6%.
Dow Chairman and Chief Executive Andrew N. Liveris said in an
interview that the company is pivoting away from businesses exposed
to volatile and unpredictable swings in commodity prices and will
jettison smaller businesses that don't fit into Dow's growth
plans.
"Instead of deep and wide, we're going deeper and narrower," Mr.
Liveris said.
Dow plans to shed between $4.5 billion and $6 billion in assets
during 2014 and 2015 as it refocuses on higher-margin businesses
instead of commodity chemicals. Chemical-production units are for
sale, including plants that create chlorine and epoxy.
The improved results signal that Dow's efforts to restructure
itself are paying off, Macquarie Capital Inc. analyst Cooley May
said in a note to clients.
Investors reacted favorably to the earnings news this morning,
driving Dow's stock price up 2% to $49.97 a share.
It is uncertain whether the company's efforts will satisfy
activist investor Daniel Loeb of Third Point LLC, who has been
pushing Dow to go even further and split off its petrochemicals
business from segments that make specialty chemicals for
agriculture, food, pharmaceuticals and electronics. Dow maintains
that breaking up the company would hurt overall operations and
shareholder value.
"We've had very positive interactions with Third Point. We've
educated each other both ways," Mr. Liveris said. "Hopefully they
stay an investor for the right reasons."
Third Point couldn't immediately be reached for comment.
Write to Alison Sider at alison.sider@wsj.com and Tess Stynes at
tess.stynes@wsj.com
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