Dow Chemical: The Transformation Proceeds

Apr.26.07 | About: Dow Chemical (DOW)

Earnings Highlights:

• Sales grew 3% to $12.43 billion from $12.02 billion last year
• EPS of $1.00 a share net estimates
• Earnings were $1.00 per share, down from $1.24 in the same period last year. The fall was principally due to a decline in licensing revenues from extremely high levels a year ago.
• Double-digit sales growth in Europe, Asia Pacific and Latin America more than offset continued weakness in North America, particularly in the housing and automotive sectors.
• Volume was up 1% in the quarter, with solid gains across most businesses.
• Asia Pacific, Latin America and Europe all reported strong demand growth -- with volume increases of 13%, 8% and 7%, respectively -- more than offsetting an 8% decline in North America.
• Prices edged 2% higher, with healthy gains across most of the company's performance businesses and in basic plastics, dampened by lower prices in basic chemicals.
• Equity earnings for the quarter were $274 million, an increase of more than 60% compared with the first quarter of 2006, reflecting the value of the Company’s asset light strategy.
• Increased the quarterly dividend 12% to 42 cents a share -

CEO Andrew Liveris:

We have spoken a great deal recently about the power of Dow’s integration and diversification – and these results amplify those words. Our geographic balance meant that robust sales in Europe, Asia Pacific and Latin America more than offset continued weakness in North America; strong growth in many of our Performance businesses and in Basic Plastics countered a downturn in Basic Chemicals; our joint ventures contributed another quarter of excellent earnings; and we continued to strengthen our position in several key industries through our market-facing business model.

Regarding Feedstock Pricing, Andrew Liveris said:

While there was a temporary pause in feedstock and energy cost increases at the start of the year, we saw a sharp change in direction mid-way through the quarter and expect second-quarter costs to be higher than the same period last year. That said, strong demand and good pricing momentum has continued through April -- reinforcing our view that 2007 will be another solid year for the company.

Buyout rumors:

Liveris on CNBC: "We are not for sale and have had no conversations with anyone regarding a sale."

Summary
Another solid quarter for DOW. Five years ago, the North American decline would have decimated earnings. Now, it is becoming just a blip on the screen. Share buybacks are continuing, the dividend is increasing and it seems like each week another asset light highly profitable joint venture is being announced. There isn't anything not to like about DOW now. Liveris is doing a masterful job at reinventing DOW, and we shareholders are benefiting and will continue to for a long time . . . kudos.

DOW 1-yr chart:

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