The good news here is that the move is being done to “restore margins” and the previous 20% increases have stuck.
Watch CEO Andrew Liveris this morning on CNBC. He reinforces many of the same things we spoke about in my interview with him earlier this month.
Part 1:
Part 2:
Bottom line, Liveris is going to deliver earnings for shareholders in the long run. If that means he has to restrict supply and raise prices he will. If means he has to move production to nations that offer cheaper inputs for his products, he will (and is).
Short run, it will not be very pretty. You do not raise prices 35% to 45% on all product lines and reduce output in a month for any other reason than things are real tough. Liveris said as much in the CNBC interview when he said “we are fighting for our lives in the trenches right now”. Current estimates are for $.92 a share for Q2, do not expect that to be hit.
Perhaps it is me, but, Dow below $36 a share? Should it happen I will not be able to resist buying more. It has only hit that level twice since 2003, I will be buying.
What we are seeing simply is the result of years of Congressional neglect on energy coming home to roost. Congressional drilling bans, restrictions, refining permitting nightmares and the list goes on and on. It take 3.5 years to get a nuke plant approved in the US, a joke.
We have enough natural gas off our coasts to power us for generations but we are restricted from getting it. Want to save on oil? Lower the natural gas price so far below that of oil (by adding supply) and watch the millions of homes in the northeast that heat with oil, using over a thousand gallons each during a typical winter make the switch to natural gas to heat their homes.
Until that time, we are going to have to get used to higher prices for petroleum products, which, unfortunately cover a huge swath of the good we use daily.
The good news for Dow shareholders? Kuwait and Saudi JV’s. These price increases will stick and when production is moved to the Saudi and Kuwait facilities, Dow will be getting “the milk from the cow, not the farmer”. Essentially the equation enables Dow to get oil at below market prices and sell the finished good at market rates, expanding profits and margins. The other option, since input prices are lower, is keeping margins the same and sell finished good below market prices and capture share.
Either way, shareholders win big, eventually…
PS. On another note, how about Liveris standing there for not one but two interviews on CNBC today to announce the news? It was not some middle of the night press release followed by a “no comment” from management. Typical Liveris, “this is the deal and what we are doing about it” (quotes mine). You can count the number of CEO’s who do that on one hand.
For all his honesty and forthrightness regarding Dow, you would think more people would take what he says about the future of the company more seriously. No matter, either way, it will happen and by ignoring him, investors give me time to gobble up more shares, at a now rock solid 4.5% yield at sale prices….
Thank You
Disclosure (“none” means no position):Long Dow
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