Midland, MI, September 1, 2006--Dow Chemical said it plans to close seven plants in Canada and Italy and incur a third-quarter charge of $550 million to $650 million.
About 750 jobs will be cut at the seven plants and at other facilities not yet disclosed, said a Dow spokesman. The charges will save the Midland, Mich., chemicals giant an estimated $160 million a year, the company said.
These savings should add 7 cents a share to 2007 earnings and 12 cents a share to 2008 results, said Prudential Equity Group analyst Steven J. Schuman.
He also boosted the investment bank's price target to $40 a share from $38, but kept his recommendation at neutral weight.
"We do not see many significant catalysts for the company," heading into the third quarter, Schuman said in a note to clients.
Most of the closures will occur at the company's perations in Canada. Dow will shut production at its four plants in Sarnia, Ontario, by the end of 2008, as it reduces output of some chemicals used to make plastics. The company said pipeline problems cut delivery of a key component of its polyethylene product.
In Fort Saskatchewan, Alberta, Dow will close two plants that make chlor-alkali and other chemicals used in the production of paper, petroleum and other industrial products by the end of October 2006. Dow blamed "substantial capital costs" required to maintain operations at the 27-year-old facilities.
At Porto Marghera, Italy, Dow said it won't restart a toluene diisocyanate plant following the scheduled maintenance shutdown in early August. Dow said the fundamentals of that business, which makes the building-block chemicals that ultimately turn up in adhesives and foams, "remain weak due to excess global production capacity."
Over the past three years, Dow has closed more than 50 manufacturing facilities worldwide to shave costs.
In the second quarter, Dow said net income fell 19% and per-share earnings missed estimates, as higher costs overshadowed a 9.2% gain in revenue.
The closures could tighten pricing in the markets for several of the chemicals produced at the closed plants, benefiting other chemicals makers.
Prudential estimates Dow's Fort Saskatchewan facility represents about 3.2% of the North American capacity for chlor-alkali.
In Sarnia, ethylene supplies used in making polyethylene were cut off in March when BP PLC suspended shipments of the chemical through its Cochin pipeline, said Dow spokesman Chris Huntley.
About 340 Dow jobs and 40 contractor jobs will be eliminated by the Sarnia closures, said Huntley. One hundred workers in Fort Saskatchewan and 180 in Porto Marghera will see their jobs cut. Dow hasn't identified where the rest of the 750 layoffs will be, though some workers may be redeployed elsewhere, Huntley said.
