Midland, MI, Oct. 24--Dow Chemical¹s quarterly earnings more than doubled, but the firm noted that it would have to cut spending and other costs to combat the slow economy.
Dow reported net income of $128 million, or 14 cents a share, up from $57 million, or six cents a share, in the same period a year ago. But both periods included a string of special charges‹largely related to Dow''s acquisition of Union Carbide‹and without those write downs, earnings for both periods would have been about 16 cents a share.
"Dow''s results this quarter fell below our earlier expectations," J. Pedro Reinhard, executive vice president and chief financial officer said. "Although there was margin improvement in some of the basics businesses, it was not as much as anticipated primarily because of higher feedstock and energy costs."
The higher costs for feedstocks used to produce its plastics and chemicals‹which are then used in everything from paint to soda bottles‹was the main factor in the company''s warning earlier this month that it would miss third quarter earnings estimates. After that warning, analysts sharply reduced their earnings estimates.
Analysts expected Dow Chemical to earn, on average, 16 cents a share, according to Thomson First Call.
"They already pre-announced, so it was in line with their 16 cent pre-announcement," Buckingham Research Group analyst John Roberts said. "Their earnings were flat year-over-year, but volume was up 3%‹in line with many industrials."
Even with the sluggish economy, the chemical company increased sales by 5% to $7 billion, with both price and volume up from a year ago. It was hard hit, though, by energy and raw material costs.
Crude oil and natural gas are key components of raw materials used in the industry, and energy prices over the past month have been bolstered by concerns about the possibility of U.S. military action in Iraq. Dow''s feedstock and energy costs in the third quarter rose 6%, or more than $120 million, from the same period last year.
Dow Chemical earlier pointed to Europe as the principle reason for its earlier third quarter warning. The company specifically pegged that region when it said higher oil and gas feedstocks costs affected its profit.
The company, like most in the sector, has also been plagued by lower chemical prices.
Reinhard added that while earnings in the fourth quarter should surpass those from last year, which were severely depressed, the business remains challenging and the company planned to cut back its spending.
Next year''s capital spending, for example, will now be reduced by 20%. Other cuts to costs and expenses are also planned.
