Dow Chemical (DOW) Earnings Call Notes

Some very interesting items in this quarters earnings call for Dow Chemical (DOW)

* Dow repurchased 10.8 million shares in the first quarter ($410 million worth) the most purchased in one quarter in over 10 years. Since Q1 2006, Dow has spent $2.5 billion buying back 61 million shares.
* Expect $400 million in repurchases in Q2
* Liveris on JV openings “On the HPPO project with BASF in Antwerp, that project has had some delays, so we expected to be back half this year in terms to start up on the EQUATE expansion that will come up in phases, the third quarter will see the ethylene and EG …EOEG plant come up and the poly ethylene will come up in the early part of next year so there will be some impact from that and the PO project later in the year.”
* Liveris on what will happen with the $9.5 billion from Kuwait:
“I’ve repeated to many of you and so has Geoffery, that our discipline is intact on the M&A front. We’ve had several years of strict discipline, financial and strategic criteria, we are going to go through the year and frankly, the share buyback option as the Kuwait deal looms to close, becomes more and more probable and we’ve always said we’re going to preserve our optionality in case one of the targets we’ve been interested in now, not just for a month, but for years if these targets become more realizable, we will look at them, but I think the probability waits heavily to share buyback, to your question as the year goes by, what you’ll see from us is patience and prudence and discipline and as the Kuwait deal, as Geoffery mentioned in his remarks gets closer and closer to- through the higher due diligence phase to close, the chances of share buyback increase quite dramatically.”

I have been saying what would be perfect would be a $4.5 billion repurchase, a nice dividend hike and keep the rest for acquisitions as they come up. Liveris has proven to be a deft and disciplined value investor in this area and leaving his the means to exercise that ability without the company having to take on more debt is good for shareholders. This does not mean that a year from now if no opportunities arise another $2 to $3 billion could not be bought, there is just no reason to rush out and do it at once, even though it would make a nice headline.

Doing a partial buyback like the one above would enable a $.25 cent dividend increase without any additional cash outlay, bumping the yield up to 4.7% at current prices. I can live with that.

* Liveris on acquisitions:
“And it’s based on history. As you can see, we’ve done 11 smaller acquisitions, as Geoffrey mentioned in his remarks. The probability is that they will stay small until the right opportunity presents itself that’s bigger. Meantime, then, the deadline, if you want to use that term, of the close of our Kuwait deal increases the probability that share buyback will become a reality. And we’re fine with that. I mean, we’re preserving optionality and we’re doing share buyback. It’s a big and. And that’s how we’re managing the Company. That’s how we’re managing the precious cash our shareholders give us the right to manage.”

Am I the only one who thinks Sherwin Williams (SHW) fits perfectly here?

All in all, perfectly in keeping with both stated objectives and the direction given to shareholders.

Disclosure (“none” means no position):Long Dow, SHW